Savings: What the advertisements won't tell you

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The banks and non-banks who spend the most money advertising their savings accounts are not necessarily the ones that deserve your loyalty, writes Jackie Pearson.

January 14, 2010

Should you believe the catchy slogans and big rates in newspapers and online advertisements or are you better off doing your own research to find the best deals?

The sole purpose of any advertisement from a bank or other deposit-taking institution is to make money. So don’t overlook the advertiser’s primary motive when you consider taking up their latest offer.

The banks make decisions about what and when to advertise based on how they can maximise their profits. For example, earlier in 2009 when official interest rates were on their way down there was saturation of advertising of online savings accounts.

That’s because their interest rates are variable and can be adjusted as soon as the Reserve Bank of Australia (RBA) announces an official rate change. In a climate where rates were likely to go down, the banks did not push term deposits in their advertising campaigns.

If anything they wanted to discourage savers from locking in to a rate for 12 months; they could get away with paying you less interest if you opted for a variable rate online account.

As rates started to move up again in the latter months of 2009 the opposite became true. Advertisements for online accounts became less prevalent and those for term deposits became more common.

Relatively new brands in the Australian marketplace, such as ING Direct and Bankwest have spent substantial advertising budgets cementing their position as “market leaders” who offer the “best available rates”.

Five years after the introduction of online savings accounts to the Australian marketplace the ING Direct Savings Maximiser and BankWest’s TeleNet Saver are still in the top 10 accounts for interest rates so they still represent reasonable value for money.

And online savings accounts as an aggregate continue to pay better interest rates than cash management accounts, bonus savers or term deposits. However, the generosity of their rates has halved between January 2004 and January 2009, according to RBA statistics.

For example, in January 2004 the margin between the average online savings account interest rate and that paid by cash management accounts was 2.45 perecnt; by January 2009 the margin had narrowed to 1.2 percent. There has been a similar “shrinkage” in the margin between online savings account interest rates and those paid by bonus savers and term deposits.

So the moral is to always look further than the latest advertising campaign. Do your own research and comparison shopping to ensure you end up with the best available deal. Don’t get too attached to any particular brand – they may earn your loyalty with generous interest rates but that doesn’t mean they’ll continue to lead the market indefinitely.


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