Is it really fair?

Savers may be the winners in the bank funding wars; with interest paid on cash accounts continuing to outstrip returns from the share market. But new research shows that many loyal customers, who have long held savings accounts with a single institution, may be coming off second best.

That’s because existing savers aren’t typically eligible for an institution’s “welcome rate”, which they say is reserved for new customers.

For instance, new customers can open a RaboDirect high interest savings account and get a whopping 6.01 percent per annum for the first four months on balances up to $250,000, while existing customers earn a base rate of 5.4 percent per annum That’s a big difference of 61 basis points.

New customers who open an ING Direct Savings Maximiser can earn 5.86 percent for four months, compared to the base rate for existing customers at 4.5 percent; a difference of 135 basis points.

On a $20,000 investment, that could see existing customers miss out on a maximum of $92 in interest during the promotional period (with ING Direct).

Clearly, when it comes to savings accounts, loyalty doesn’t always pay. But is this really fair?

Luring savers with offers that revert to a lower rate after a period of time is something the Australian Securities and Investments Commission (ASIC) has been watching closely. Money Magazine reports that “dual pricing”, as it’s sometimes called, is not limited to online accounts; a review by ASIC of the term deposit market in late-2010, found that seven out of eight deposit-taking institutions using dual pricing.

So what can you do about it? The obvious option is to become a rate chaser and follow the good deals. But with many promotional periods lasting just a few months, who has the time or energy to constantly move their money?

If your institution offers a promotional rate to new customers, that you feel you deserve, contact your bank and see what they can do for you. If they aren’t prepared to extend the offer to you, then consider switching to an account with a high ongoing rate. UBank‘s USaver account pays a maximum ongoing rate of 6.01 percent, while ANZ‘s Progress Saver pays 5.76 percent with no end date, to name just two.

The catch with some online savings accounts is that they tend to have conditions attached to getting the maximum rate of interest paid. Take UBank‘s USaver account for instance; a customer must be in a position to make regular deposits (a monthly minimum of $200) to achieve a maximum rate of 6.01 percent, ANZ requires a minimum deposit of $10 and no withdrawals during the month to achieve the maximum rate on its Progress Saver account.

The truth is, most savers don’t move their money around very often and institutions rely on this inertia. So if you’re in the market for a savings account, and unless you’re prepared to “keep it moving”, take a long-term approach and make sure the revert rate is worth signing up for.

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