Afterpay to provide Westpac-powered savings accounts

Afterpay to provide Westpac-powered savings accounts

Afterpay’s millions of customers will be able to sign up for Westpac-powered savings and transactions accounts under a partnership between the two traditional rivals.

The agreement will allow Afterpay, considered the largest buy now, pay later provider with a market value of $27.7 billion, the ability to offer new products by using Westpac’s deposit taking licence. Meanwhile, Westpac gains access to Afterpay’s 3.3 million customers -- many of which belong to a younger demographic.

“The introduction of savings accounts and budgeting tools offers new customer benefits that continue to build on our core principle of encouraging responsible spending and enabling financial wellness,” Anthony Eisen said, chief executive of Afterpay.

“In deepening our relationship with our customers we will gather greater insights into how they prefer to manage their finances and better understand their savings goals. This will allow us to assist them to budget more effectively and avoid debt traps.”

The deal will also make Afterpay the first partner on Westpac’s banking platform, powered by cloud computing from 10x Future Technologies.

“Fintech innovation is changing banking in important ways and our new digital banking platform is part of our long-term strategy to support this trend and better respond to changing customer needs,” Peter King said, chief executive of Westpac.

“The platform allows us to combine our banking experience with the innovation of our partners to support new customer experiences.”

Afterpay will begin offering its branded savings accounts from the second quarter of 2021.

What is Afterpay?

Afterpay is a digital only service that makes it possible for people to buy an item and pay it off over four, fortnightly instalments.

If repayments are made on time, there’s no charge. But miss a repayment and there’s a $10 late fee, followed by a further $7 fee if it’s still not paid after seven days.

The payment option has proven popular with millennials who have widely embraced the platform.

A RateCity survey found Afterpay led to 16 per cent of people overspending, 14 per cent paying a late fee and 9 per cent going into overdraft on their bank account.

What would an Afterpay savings account look like?

News of the partnership came with little detail on what would fundamentally make an Afterpay savings account different to the options already available to customers, if anything, but this is not uncommon for products that are to be rolled out in several months.

The accounts could be used for typical things, such as paying bills, withdrawing cash and budgeting. The same “simplicity and transparency” that made the application popular would be baked in, Afterpay said.

The savings and transaction accounts could be linked to existing Afterpay accounts to help people budget their spending and reach financial goals. Afterpay said linking two accounts would help them understand “how customers prefer to manage their finances, what their savings goals are, and how responsible spending behaviour can be further encouraged and rewarded”.

More than 60 banks slash savings interest rates

News of an Afterpay branded savings account comes at a time when banks are slashing the interest that savings accounts can generate.

In the last two months, 67 banks cut interest rates on savings accounts by an average of 0.17 per cent, a RateCity analysis found.

The drop in savings rates generally correlates to the drop in mortgage interest rates, as both use the Reserve Bank’s cash rate as a guidepost.

The cash rate is currently at 0.25 per cent, the lowest it’s been in 30 years since records have been kept, and it’s possible it could be cut further at an upcoming board meeting on 3 November.

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Learn more about savings accounts

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.

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.

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.

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 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. 

Can you set up a savings account online?

Yes. Several large and small banks offer online applications for savings accounts, and there are also online-only financial institutions to consider.

Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.

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.

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.

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 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.

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 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

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.