Inordinate bank fees eat away at Australians' superannuation

Inordinate bank fees eat away at Australians' superannuation

Australians are paying big money to save for their future but exorbitant fees could be affecting their retirement plans. 

The Murray Report, as part of the Financial Services Inquiry, has highlighted the excessive fees being tacked on to superannuation schemes, which is draining self-managed super funds (SMSFs) and savings accounts across the country.

It’s been 16 years since the federal government implemented a financial system inquiry. For some, the Murray Report will be welcomed as providing well-overdue advice.

The report found Australia’s superannuation sector fees are some of the biggest in the OECD, with little evidence of powerful fee-based competition, explained cloud-based investment adviser and fund manager Stockspot.

Are Australians paying too much?

“Just 15 percent of financial advisers are fully independent and consumers are being taken for granted. An [Australian Securities and Investments Commission] study found 39 percent of advice examples were poor and they could only find two example of good quality advice,” said Chris Brycki, Stockspot Founder.

A number of competition concerns have been raised, with just “modest” fee declines over the past 10 years. Despite this, Australia’s financial advice sector is proving to be too expensive for many – 42 percent of the country’s adult population has never employed financial advice services.

Superannuation fees aren’t much better. Since 2004, fees have taken up more than a quarter of returns, Brycki noted.

There is plenty of pressure on individuals, couples and families to start dedicated savings and retirement accounts earlier rather than later. Some people will want to top up their Age Pension allowance with extra income. However, it appears that exorbitant fees and financial barriers to financial advice could be holding people back.

What’s the solution?

Brycki agreed with the Murray Report’s finding that technology can help drop consumers’ costs, improve access to financial advice, raise the quality of financial advice and decrease risk.

As the founder of the nation’s first cloud-based fund management and investment advice service, it’s no wonder Brycki is praising the report’s findings. The service is available to anyone with at least $2,000 to invest.

“40% of Australians either can’t afford advice or would like to receive scaled advice online, and fortunately technological change is now allowing companies like Stockspot to deliver a fair go for consumers,” he said.

Other ways to cut costs

There are other ways to slash banking costs – and these tactics are not limited to SMSFs. 

For instance, undertaking a credit card comparison could help cut costs significantly. For those who pay off their credit card balances within the interest-free periods, switching to a low-rate card could be smart. For those paying off significant credit card debt, switching to a low-interest card with an introductory no-interest balance transfer rate might be a wiser move.

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Learn more about savings accounts

How can I get a $4000 loan approved?

While personal loans and medium amount loans don’t offer guaranteed approval, there are steps you can take to help increase the likelihood of your application being approved, including:

  • Fulfilling the eligibility criteria (providing ID, proof of residency, proof of income etc.)
  • Checking your credit history (you can order one free copy of your credit file per year, and make sure that there aren’t any errors that may be bringing down your credit score)
  • Comparing carefully before applying (making multiple loan applications can mean having your credit checked multiple times, which can look bad to some lenders and reduce your chances of being approved by them)

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
  • Employment details

What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.

What is the interest rate on savings accounts?

As banks frequently change their rates, the most accurate way to look at interest rates on savings accounts is to use a savings accounts comparison tool. When you look at the savings rate check what the maximum and minimum rates are. Often banks will offer you a promotional rate for the first few months which is competitive, but then revert back to a base rate which can sometimes be less than inflation. Ongoing bonus rates are often a safer bet as they will keep rewarding you with the maximum rate, provided you meet their criteria

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.