CBA responds to ASIC’s investigation into school banking

CBA responds to ASIC’s investigation into school banking

The nation’s largest provider of school banking has responded to criticism that they’re taking advantage of ‘vulnerable’ children in an effort to grow their customer base.

The Commonwealth Bank disagreed with the Australian Securities and Investment Commission’s (ASIC) assessment of their school banking Dollarmites program, but did acknowledge some of the regulator’s findings.

“Our School Banking program reinforces the importance of regular savings, equips students with the knowledge of how to access and use a bank account, and provides structure for parents to support their children to save regularly,” Mark Jones said, general manager of the CBA’s customer service network.

“We are proud of the program and the positive impact it delivers.”

The bank provided a range of statistics -- selected from a variety of sources -- in defence of its program. These include:

  • Students with a bank account score 37 points higher in financial literacy than those who do not, according to research by the OECD
  • About 84 per cent of parents with children in programs like Dollarmites are satisfied, according to ASIC research.
  • 80 per cent of parents with a child in the Dollarmites program find it a valuable introduction to banking.

Four key findings, mostly damning

ASIC’s Report 676, a sweeping review into the benefits and risks of school banking programs, distilled four findings.

The most damning identified young children as ‘vulnerable’ consumers exposed to sophisticated advertising and marketing tactics.

Others included a failure to disclose that these programs help sign up new customers; that schools are encouraged to participate in the program because they receive millions in payments; and that there’s no proof the programs improve savings behaviour.

The review spanned two years and was comprehensive in scope. It included:

  • Feedback and documents from the ten school banking programs
  • Commissioned academic and consumer research
  • A public consultation yielding 1200 submissions
  • Consultation with state and territory education authorities on school banking policies and practices.

Not just CBA, but mostly

The review did not solely focus on Commonwealth Bank’s Dollarmites program. About 10 school programs were evaluated, and of them it was announced four are in the process of winding down after the regulator shared their findings. These include Bendigo, IMB, South West Credit and Northern Inland.

Commonwealth Bank’s Dollarmites is the largest school banking program in the country. It remains the last nationally available program, and dominates the market with a share of 92 per cent.

ASIC - school banking data.JPG

The bank paid about $2.1 million to 3629 schools participating in its dollarmite program in the financial year ending in 2019. Another $1.3 million was paid in the financial year ending in 2020, which was interrupted by the COVID-19 pandemic.

CBA is putting into practice an action plan

The Commonwealth Bank was briefed on the report’s findings ahead of its publication yesterday, 15 December, and is already at work putting into practice an action plan.

The action plan broadly aims to transition the Dollarmites program into a “more holistic financial education program”, by teaching children about “financial education uplift, digital experiences, and products and services”.

The reorienting of the program is said to bolster savings behaviours. In response to a critique from ASIC, these behaviours will be measured to demonstrate the program’s impact.

Commission payments to schools are being published online in a move to increase transparency. The data, already available for the most recent financial year, breaks the payments down by state.

The bank is also reevaluating its marketing material following the regulator’s assessment it’s being made available to ‘vulnerable’ children.

Calls for banks to be kicked out of schools

The findings in ASIC’s report led to RateCity calling on state and territory governments to ban school banking programs -- a move that’s already been undertaken by the Victorian government.

“School should be a safe environment where kids aren’t exposed to financial marketing and advertising,” Sally Tindall said, research director of RateCity.

“There are cash incentives for schools that sign students up, and it’s effective marketing for CBA which get customers, sometimes for life. There must be a better way to teach our kids about money that doesn’t involve kickbacks.”

A RateCity survey of 1000 people found school banking programs did not improve people’s financial confidence later in life. In some cases, the survey found it led to people fostering complacency and not shopping around for a better deal.

Just over half of Australians used a school banking program as a child, the survey found. Of them, about 34 per cent still banked with that same institution -- some even into their late 60s.

Did you find this helpful? Why not share this news?

Advertisement

RateCity

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the ratecity.com.au Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy

Advertisement

Learn more about 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 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 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

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 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 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.

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 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 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.

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.

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 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 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.

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.