Why do loyal customers miss out on promo interest rates?
I have two online saving accounts and neither is paying me the advertised headline rate. Because I've been a loyal customer over eight years with one of the online accounts, I'm not eligible for their welcome rate of 6.25% or a bonus $20 in interest.
This, they say, is reserved for new customers.
The other online account pays new customers 6% for four months while I earn just 4.25%. That's a (BIG) difference of 1.75%.
On a $20,000 investment that could see me miss out on over $115 in interest during the promotional period.
Perhaps I should be grateful though that the gap between the promotional rate (6%) and ongoing rate (4.25%) isn't the biggest gap on the market. According to Canstar Cannex, Bank of Queensland's WebSavings account takes out the gong for that.
New customers who open a WebSavings account are paid additional interest of 2.15% until December 31, 2010 on balances of $2000 or more. Existing customers earn just 4.10%. That's not good when you consider over 20 online saver accounts have an ongoing rate 5% or higher.
Luring savers with offers that revert to a lower rate after a time limit is something the Australian Securities and Investments Commission has been watching closely.
"Dual pricing", as it is sometimes called, is not limited to online accounts. A review by ASIC of the term deposit market found that seven out of the eight deposit-taking institutions were guilty of dual pricing.
It's a gripe, judging by the number of emails and queries I've been getting, that quite a few of our readers share. So what can we do? The obvious option is to turn into a rate tart! But of course this is easier said than done.
Chasing the best promotional rates takes time and is a hassle. And online savers aren't as simple as they used to be.
The biggest issue with online accounts is that they tend to have conditions attached to getting the highest possible rate.
Conditions include having to be a new customer, a limited time frame, no withdrawals and the need to make ongoing deposits or increase your balance by a certain amount.
Take Virgin Money's online saver for example: at 6.75% it's currently paying the highest promotional rate. But this offer is only for new customers and only for four months, after which it reverts to a base rate of 5.35%.
UBank on the other hand pays one of the highest ongoing base rates - 6.01%. If you're in a position to make regular deposits of at least $200 a month the ongoing base rate jumps to 6.51%. In an ideal world you'd take Virgin's offer for four months then move your business to UBank. That is of course if you have the time and patience.
The fact is, most savers don't move their money around very much and institutions rely on this inertia. So, if you are lured by promotional rates, make sure your revert rate is still competitive.
According to Canstar Cannex the top five online saver accounts when ranked on their base rates only are Railways Credit Union (6.1%), UBank (6.01%), ME Bank (5.6%), Arab Bank (5.55%) and The Capricornian (5.5%).
The highest base rate is still below the highest one-year term deposit rate. Most term deposits offer a rate of 6% or 6.5% for a 12-month term and usually, as the term increases, so does the interest rate.
If you can't be bothered chasing the highest promotional rates and you're not in a rush to access your cash, there is a small reward for locking in. Of course be aware that term deposits, just like online saving accounts, can come with a few strings of their own. To take advantage of some term deposits you have to open a deposit account with that bank. There could be costs involved that could offset some of your hard-earned interest. And never make the assumption that your money will be rolled over to a similar deal when the term is up!
The good news is deposit rates will stay high as long as wholesale funding for the institutions remains expensive.
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