Banks Not Paying Customers Enough Interest: ACCC

ACCC Chair Gina Cass-Gottlieb speaks to media during a press conference at the ACCC Office in Sydney, Australia, on June 8, 2022. AAP Image/Bianca De Marchi

Bank customers who collectively hold over $1.4 trillion (US$938 billion) of their savings in products such as savings accounts and term deposits, and depend on them to earn a decent return, are missing out on higher interest rates, the Australian Competition and Consumer Commission (ACCC) Retail deposits inquiry final report has found.

“While high headline interest rates may seem attractive to customers, they can come attached with conditions that are hard for customers to meet and keep track of,” ACCC Chair Gina Cass-Gottlieb said.

While offers of bonuses and introductory interest rates are commonly used by banks to attract customers, the ACCC has found that in the first six months of 2023, on average 71 percent of eligible accounts did not receive bonus interest in any given month.

The report concluded that banks create complexity and make it difficult for consumers to compare products by using tactics such as introductory and bonus interest rates, a range of fees and charges, product design, and conditional interest rates, leading to significant differences between rates across comparable products, even within the same bank.

This creates barriers to searching for and switching between, retail deposit products.

Complex Rules

One bank offers an “unconditional saving account” rate of 3.75 percent, which would return interest of $232 over a year on an initial deposit of $5,000 to which a customer added $200 a month.

The same bank’s “bonus interest account” pays 5.25 percent a year, meaning the customer could earn around $328 of interest over 12 months, provided the customer met the bonus conditions. But if they failed to do so they would only receive the base interest rate of 0.30 percent—meaning that banks pay them only $18 in interest.

“Consumers can find the complexity of the pricing of retail deposit products overwhelming,” Ms. Cass-Gottlieb said. “While comparison websites can offer information across different banks and products, the results consumers see and the way they are ranked can be influenced by commercial arrangements.

“During our inquiry, we were concerned that several banks could not tell us how many of their customers had missed out on bonus interest, or which specific condition they failed to meet.”

More Transparency Needed

The ACCC has recommended measures to make it easier for customers to get the most out of their savings and move to retail deposit products that better meet their needs, including requiring banks to tell customers when they change their interest rates and prompt them to consider switching to a better rate.

“We are also recommending that banks alert their customers if they are about to lose entitlements to their bonus interest, for example by withdrawing too much or too often in a given month,” Ms. Cass-Gottlieb said.

The ACCC has also recommended that the government further consider bank account portability, which would enhance the capacity for consumers to switch between products and banks.

Bank account portability allows customers to keep their bank account while transferring from one bank to another.

“We understand that it can be difficult and time-consuming to switch between banks. Bank account portability has the potential to greatly simplify this process for consumers to switch and take advantage of better rates,” Ms. Cass-Gottlieb said.

“This would not only improve outcomes for Australian consumers, but help drive competition between banks for retail deposits.”

Banks rely on retail deposits for close to 30 percent of their funding needs on average, and some, such as mutual banks, are more dependent on retail deposits than others. Interest paid to customers is therefore a significant cost, which banks try to minimise.