ACCC seeks views on issues affecting Australian savers

The Australian Competition & Consumer Commission (ACCC) has released an issues paper outlining its key areas of focus for its retail deposits inquiry.

The review, called for by Treasurer Jim Chalmers to explore whether savers are being treated “fairly” by the banks amid a rising rate environment, seeks to understand how banks set their interest rates on retail deposits.

The inquiry was called for by the federal Treasurer after the official cash rate rose by 300 bps in nine months. While banks had been quick to pass on the cost of cash rate hikes to mortgagors, the Treasurer was concerned that banks had not been passing on the savings to depositors in tandem.

The ACCC will therefore be considering how banks have adjusted their rates for deposit accounts following changes to the cash rate target, including the use of introductory and other conditional interest rate offers.

It will also examine how interest rates of similar products vary between consumers depending on the amounts deposited, whether they are new or existing customers, whether they hold other products with the same bank, or if they belong to a particular demographic.

The issue has a broad impact given that Australians hold over $1.45 trillion in retail deposits, including $1.35 trillion of deposits by households and $136 billion of deposits by self-managed-super funds, according to the ACCC.

While the competition watchdog will consult closely with financial regulators for its inquiry — including the Reserve Bank of Australia, the Australian Prudential Regulation Authority, and the Australian Securities and Investments Commission — it is also now calling on banks, bank customers, and other interested stakeholders to share their views on competition and consumer issues affecting retail deposit products.

It is asking respondents to cover off 20 questions as part of its review, including:

• How, and to what extent, do banks compete in providing retail deposit products to consumers, including with respect to setting interest rates and other fees and charges and non-monetary factors such as innovative product design?
• How effective is competition in the supply of retail deposit products in delivering good outcomes for consumers?
• How does the cost of funding from retail deposits compare to the cost of funding from other sources? How has this changed over time?
• What is the relative importance of the various incentives and constraints that influence ADIs in setting retail deposit interest rates and interest rates for lending products?
• To what extent are ADIs influenced by the interest rate decisions of other ADIs?
• What factors influence how closely and quickly retail deposit and lending interest rates are adjusted following a change in the cash rate target?
• How easy or complex is it for consumers to search for and compare retail deposit products?
• How are consumer outcomes in relation to retail deposit products affected by impediments to searching and switching?
• What factors affect the role of retail deposits as a source of funding for banks?
• How significant are barriers to entry and/or expansion in the supply of retail deposit products?

The review also seeks to understand how banks have responded to new entrants entering and exiting the savings market.

The ACCC is calling for submissions by 19 May 2023 with a final report expected to be submitted to the Treasurer by 1 December 2023.

“The vast majority of Australian consumers have at least one savings, transaction, term deposit or other retail deposit account, and collectively Australians hold over $1.45 trillion in retail deposit accounts,” ACCC chair Gina Cass-Gottlieb said.

“For many Australians, the interest earned on these accounts is an important source of income, and consumers are understandably keen to ensure they are receiving a good return on their savings.

“We are eager to hear about competition and consumer issues affecting the supply of retail deposit products to Australian consumers and self-managed super funds. This inquiry will closely examine how banks make decisions on interest rates, and any barriers consumers face in getting a better deal...

“We also want to hear from consumers and consumer organisations about experiences in searching for and taking up retail deposit products, including any impediments consumers face in switching banks to get a better deal.” 

[Related: ACCC ‘keen to understand’ credit and deposit rate hikes]