Switching banks could be a very profitable move

Switching banks could be a very profitable move

Unhappy with your bank? You’re not the only one. So why not switch to a better alternative?

Australia’s 10 biggest banks have an average customer satisfaction rating of 78.5 per cent, according to surveys by Roy Morgan Research:

  • Big four banks = 75.9%
  • Other banks = 83.8%

There are more than 100 lenders in Australia, and competition for business is fierce, so chances are there’s an institution out there offering superior pricing and service to your current provider.

That applies whether you’re talking savings accounts, term deposits, home loans, car loans or credit cards.

Savings accounts

Many Australians have savings accounts with one of the big four banks; they opened an account with the branch up the road when they were at school, and have kept it ever since.

If you’re in that camp, you might be dismayed to learn that there are numerous challenger institutions that offer higher interest rates.

Right now, the big four banks are paying ongoing interest rates of up to 2.40 per cent.

Bank Product Base rate Max. rate
ANZ Progress Saver 0.01% 2.40%
Westpac Life 1.00% 2.30%
NAB Reward Saver 0.50% 2.30%
Commonwealth Bank GoalSaver 0.01% 1.65%

However, there are many lenders, both large and small, that are paying more.

Here are just a few examples:

Bank Product Base rate Max. rate
Bank of Queensland Fast Track Saver Account 0.50% 3.00%
UBank USaver with Ultra 1.81% 2.87%
ME Bank Online Savings Account 1.30% 2.85%
Australian Unity Active Saver 1.20% 2.80%
ING Savings Maximiser 1.00% 2.80%
Bank First Promotional Bonus Saver Account 0.05% 2.80%

If your bank isn’t doing you right, you may want to consider switching to one that works better for you. 

Term deposits

It’s a similar story with term deposits, whether you’re talking one-year term deposits, three-year term deposits or five-year term deposits.

Lender 1 year 3 years 5 years
G&C Mutual Bank 2.70% 2.80% 3.00%
IMB Bank 2.40% 2.75% 3.00%
Bank First 2.70% 2.90% 3.00%
Police Bank 2.60% 2.80% 2.95%
ANZ 2.20% 2.35% 2.45%
Westpac 2.20% 2.30% 2.40%
NAB 2.00% 1.90% 2.00%
Commonwealth Bank 2.00% 1.90% 1.90%

If you want to earn the highest interest rates, you need to switch from the big four banks to a rival institution.

Home loans

Savings accounts and term deposits are small beer when compared with home loans, where interest rate differentials can add up to tens of thousands of dollars over the life of a mortgage.

It should be noted that interest rate isn’t everything; you should also weigh up things like fees, loan features and customer service when comparing home loans. However, if we focus just on rates, you might be shocked to discover how much you could save by refinancing from one of the big four banks to another lender.

Let’s assume you’re an owner-occupier who’s looking for a $400,000 mortgage, and that you want to put down a 20 per cent deposit and pay principal and interest. If you went to one of the big four banks, the average standard variable rate would be 4.63 per cent (see breakdown in table below).

However, if you expanded your search, you would be able to find much lower rates – especially if you were willing to consider ‘basic’ home loans (as opposed to full-feature mortgages). For example, Mortgage House recently unveiled a mortgage rate of just 3.29 per cent.

Lender Advertised rate Comparison rate Monthly repayments* Total repayments*
Mortgage House 3.29% 3.34% $1,750 $629,863
Reduce Home Loans 3.44% 3.44% $1,783 $641,811
Tic:Toc 3.47% 3.48% $1,789 $644,215
Freedom Lend 3.49% 3.49% $1,794 $645,821
NAB 4.51% 4.90% $2,029 $730,483
ANZ 4.56% 4.95% $2,041 $734,770
Westpac 4.58% 4.96% $2,046 $736,488
Commonwealth Bank 4.87% 5.27% $2,116 $761,623

*Fees not included in calculations. Calculations based on a 30-year loan term.

Car loans

Car loans are another area where it’s possible to make significant savings by refinancing from a high-rate loan to a low-rate loan.

Again, interest rate isn’t the be all and end all; it’s important to also consider other factors when comparing car loans. But, all things being equal, a car loan with a lower interest rate is better than a car loan with a higher interest rate.

If you wanted a $30,000 car loan with a five-year term, here’s a comparison of some of the cheapest car loans in Australia with car loans from the big four banks.

Lender Advertised rate Comparison rate Monthly repayments* Total repayments*
PrimeEdge 4.99% 6.04% $566 $33,960
Bank First 5.29% 5.50% $570 $34,208
Community First Credit Union 5.34% 6.10% $571 $34,249
Move Bank 5.39% 5.66% $572 $34,291
Commonwealth Bank 8.49% 9.54% $615 $36,921
Westpac 8.49% 9.67% $615 $36,921
ANZ 12.45% 13.32% $674 $40,451
NAB 12.69% 13.56% $678 $40,670

*Fees not included in calculations.

 

Credit cards

When it comes to credit cards, all the big banks offer low-rate cards, with interest rates ranging from 9.90 per cent to 13.99 per cent.

That is less than the average interest rate of all the credit cards on the RateCity database, which was 16.80 per cent at the end of April.

However, there are other providers that charge interest rates under 9.00 per cent (see table below). It’s also possible to find credit cards that impose higher interest rates than the big four, but don’t charge an annual fee.

Provider Product Interest rate (ongoing) Interest-free days (maximum) Annual fee
G&C Mutual Bank Low Rate Visa Credit Card 7.49% 50 $50
Community First Credit Union Low Rate Credit Card 8.99% 55 $40
Easy Street Financial Services Easy Low Rate Visa Credit Card 8.99% 55 $40
Northern Inland Credit Union Low Rate Visa Credit Card 8.99% 0 $0
Commonwealth Bank Essentials 9.90% 55 $60
Westpac Lite 9.90% 45 $108
ANZ Low Rate 12.49% 55 $58
NAB Low Rate Card 13.99% 55 $59

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Learn more about home loans

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What is the ratings scale?

The ratings are between 0 and 5, shown to one decimal point, with 5.0 as the best. The ratings should be used as an easy guide rather than the only thing you consider. For example, a product with a rating of 4.7 may or may not be better suited to your needs than one with a rating of 4.5, but both are probably much better than one with a rating of 1.2.

Why should you trust Real Time Ratings?

Real Time Ratings™ was conceived by a team of data experts who have been analysing trends and behaviour in the home loan market for more than a decade. It was designed purely to meet the evolving needs of home loan customers who wish to merge low cost with flexible features quickly. We believe it fills a glaring gap in the market by frequently re-rating loan products based on the changes lenders make daily.

Real Time Ratings™ is a new idea and will change over time to match the frequently-evolving demands of the market. Some things won’t change though – it will always rate all relevent products in our database and will not be influenced by advertising.

If you have any feedback about Real Time Ratings™, please get in touch.

What is bridging finance?

A loan of shorter duration taken to buy a new property before a borrower sells an existing property, usually taken to cover the financial gap that occurs while buying a new property without first selling an older one.

Usually, these loans have higher interest rates and a shorter repayment duration.

Mortgage Balance

The amount you currently owe your mortgage lender. If you are not sure, enter your best estimate.

Why is it important to get the most up-to-date information?

The mortgage market changes constantly. Every week, new products get launched and existing products get tweaked. Yet many ratings and awards systems rank products annually or biannually.

We update our product data as soon as possible when lenders make changes, so if a bank hikes its interest rates or changes its product, the system will quickly re-evaluate it.

Nobody wants to read a weather forecast that is six months old, and the same is true for home loan comparisons.

How personalised is my rating?

Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

We also take a shorter term, more realistic view of how long borrowers hold onto their loan, which gives you a better idea about the true borrowing costs. We take your loan details and calculate how much each of the relevent loans would cost you on average each month over the next five years. We assess the overall flexibility of each loan and give you an easy indication of which ones are likely to adjust to your needs over time. 

What is a specialist lender?

Specialist lenders, also known as non-conforming lenders, are lenders that offer mortgages to ‘non-vanilla’ borrowers who struggle to get finance at mainstream banks.

That includes people with bad credit, as well as borrowers who are self-employed, in casual employment or are new to Australia.

Specialist lenders take a much more flexible approach to assessing mortgage applications than mainstream banks.

Mortgage Calculator, Repayment Type

Will you pay off the amount you borrowed + interest or just the interest for a period?

What does going guarantor' mean?

Going guarantor means a person offers up the equity in their home as security for your loan. This is a serious commitment which can have major repercussions if the person is not able to make their repayments and defaults on their loan. In this scenario, the bank will legally be able to the guarantor until the debt is settled.

Not everyone can be a guarantor. Lenders will generally only allow immediate family members to act as a guarantor but this can sometimes be stretched to include extended family depending on the circumstances.

Mortgage Calculator, Loan Purpose

This is what you will use the loan for – i.e. investment. 

Can I take a personal loan after a home loan?

Are you struggling to pay the deposit for your dream home? A personal loan can help you pay the deposit. The question that may arise in your mind is can I take a home loan after a personal loan, or can you take a personal loan at the same time as a home loan, as it is. The answer is that, yes, provided you can meet the general eligibility criteria for both a personal loan and a home loan, your application should be approved. Those eligibility criteria may include:

  • Higher-income to show repayment capability for both the loans
  • Clear credit history with no delays in bill payments or defaults on debts
  • Zero or minimal current outstanding debt
  • Some amount of savings
  • Proven rent history will be positively perceived by the lenders

A personal loan after or during a home loan may impact serviceability, however, as the numbers can seriously add up. Every loan you avail of increases your monthly installments and the amount you use to repay the personal loan will be considered to lower the money available for the repayment of your home loan.

As to whether you can get a personal loan after your home loan, the answer is a very likely "yes", though it does come with a caveat: as long as you can show sufficient income to repay both the loans on time, you should be able to get that personal loan approved. A personal loan can also help to improve your credit score showing financial discipline and responsibility, which may benefit you with more favorable terms for your home loan.

What is appraised value?

An estimation of a property’s value before beginning the mortgage approval process. An appraiser (or valuer) is an expert who estimates the value of a property. The lender generally selects the appraiser or valuer before sanctioning the loan.

How common are low-deposit home loans?

Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.