Why saving is behaving
Did you know there are 293 ways to make change for a US dollar, but only 50 for an Australian dollar? Cashiers in America must have jumped for joy when debit cards became the rage.
Is your bank taking you for a ride?
We all have our own methods of saving money. Some are strict―people who set a budget for the week and won’t buy a fourth glass of shiraz if the budget doesn’t allow it, no matter how good it pairs with the buffalo mozzarella. Some of us are simply careful with our spending, settling for the own-brand wholemeal loaf rather than Helga’s mixed grain favourite.
Whatever the approach, your clients should be aware of the finer conditions of savings accounts interest rates. Otherwise they may say to their bank – as you would to the person who invented zero – thanks for nothing.
What types of offers are out there for savers?
Banks use two main approaches to attract new savings customers.
This involves the bank offering customers a standard rate, plus an additional bonus rate for a certain period (usually 4 months).
Once the bonus period runs out, the customer then receives the standard rate. The difference between the bonus and standard rate can be more than a whopping 1.5%. Imagine receiving $150 in interest a month then downgrading to $60 – that’s two fewer smashed avos on toast. On the other hand, those savings accounts that offer customers a competitive standard rate post-bonus are ideal for earning a guaranteed return without fuss.
Unlike the promotional bonus, the conditional bonus approach gives customers a chance to continuously earn a competitive rate on their savings. It comes down to whether the customer wants to jump through the hoops required – there’s no soft landing if they stumble.
Common conditions required by banks to receive the juicy bonus rate are:
- Deposit $2,000 per month into attached transaction account, and/or
- Make at least 5 withdrawals a month from attached transaction account, or
- Deposit $200 a month and make no withdrawals.
This can work well, providing the conditions are met.
However, if they aren’t, the bank will often reduce the interest dramatically. This means the customer doesn’t have the flexibility to spend or save on their own terms. That’s not ideal for those that spend using their credit card (and pay off by due date of course) to earn frequent flyer points for their annual trip to Bali.
Regular savers may benefit from a conditional account if they can meet the bank’s demands, while flexible savers may get more from a good ongoing standard rate with fewer conditions.
It all comes down to behaviour – and reading the small print.
©AMP Life Limited. First published June 2019