Banks laughing all the way to the… bank

OPINION

Banks keep making headlines for all the wrong reasons, most of them to do with greed. But the perpetrators of the global financial crisis are unrepentant.

I realised just how unrepentant when I recently noticed the monthly interest on my St George business account suddenly dropping from a few dollars to mere cents. The monthly fees of course didn’t change.

My interest had not been making me rich but at least I had some comfort because it exceeded the monthly fees. Not only was my interest income now approaching zero, but my bank recently repayed my 20 years of loyalty by closing my local branch so I have to travel to the next suburb to make deposits.

I asked one of the few remaining tellers what the new rates were and I got a shock – it seems $5K is the new penniless with interest at a big fat zero. But not to worry, if I could afford to park a lazy million there, the rates climbed to an underwhelming 0.75%.

Then I heard a radio news item reporting that Australians are not saving, with a third of people having no savings at all. With interest rates like that on offer, it’s little wonder.

I thought it may have been just my bank so I checked out some others.

Westpac doesn’t muck around. On its Choice, Choice eAccount, Classic Plus, and Basic accounts it simply offers “no interest”. They expect us to give them our money to use as they like for free.

At the NAB, their seven transaction accounts all offer a slightly less impolite 0.01% interest on any balance.

The Commonwealth offers a 0.01% pa on deposits up to $50,000.

With standard variable loan rates pushing 6%, that’s a fabulous margin the banks are making as they loan out our deposit money.

Yet this doesn’t seem to get reported. The media froth at the mouth every time the banks don’t pass on part of a Reserve Bank cash rate reduction, which is currently sitting at 3%.

But this seems small beer in comparison to the gouging applied to our savings. While home loans are earning banks 3% more than the Cash Rate, the gap between deposit interest and loan rates approaches twice that.

This hits all of us whereas  mortgage interest hits only those who have a mortgage.

At the same time Choice reports that Australian banks have taken $11.6 billion from us in bank fees over the past year, or $680 per household – an 8% increase. The banks respond that the increase is because we are banking more.

But Choice points out that the banks made $961 million from penalty fees alone. If you overdraw, you could be hit with a $30–$40 fee. Choice says this is 70 to 80 times the actual cost to the bank of dealing with the problem.

Now that’s a margin, especially if it was a bank fee debit that created the overdraw.

How to respond? It seemed clear to me that my bank was not interested in deposits so I obliged by withdrawing most of my money and paying it into a mortgage with another bank. If I can’t earn any interest, at least I can save it. But people poorer than me can’t even do that. They just get gouged.

Of course you can get better rates from term deposits etc but this only helps people with excess lazy money they can tie up. But everyone needs a transaction account, and businesses need a business account which also pay almost no interest (see tables).

We have no choice and the greedy behaviour of the banks looks more like that of a monopoly than that of a competitive free market.

If the government had not sold the Commonwealth Bank, we would have a tool to keep the bastards honest.

Stop Press: The CBA has rubbed salt into the wound by increasing its mortgage interest rate by .1% — even though the Reserve Bank had not increased its rates. On Tuesday NAB and Westpac followed suit. Greed rules!

by Michael Gormly