I received a question on social media the other day, from Ash.
It's a good one.
Hi Scott,
I have my savings in CommBank Goalsaver right now and the interest rate is only 0.4%. I told them ING is 1.35%, but they said there's not much they can do.
Should I move some to ING?
I buy shares and still looking at a house later in the year, but my savings aren't doing much at all anymore with CommBank in the meantime.
Thanks if you can help me at all, appreciate your advice
Ash
It's a good question on a few levels.
First, while we obsess over interest rates, much of the reporting is done through the prism of home mortgages, and occasionally the impact on business.
That's understandable – those are the areas that are probably most sensitive to changes in rates, and where the RBA's decisions have most economic impact.
But it's not even close to the full story.
After all, only about one-third of us have a mortgage. A similar proportion rent and another similar proportion own their own homes, outright.
And yes, most of us work for a business, but relatively few businesses will change their hiring or firing decisions based on 0.25% (or less!) change in the official cash rate.
But what about self-funded retirees, who've seen their bank interest plummet?
And savers, who are trying to get ahead with money in the bank, often trying desperately to cobble together a deposit?
Yes, shares are actually a pretty good alternative (I would say that, but I happen to also think it's true), but they're not always practical, usually because the volatility doesn't suit the needs for which the money is earmarked (you don't want a sudden drop in the market three weeks before you planned to cash out for a house deposit or a new car, for example).
So, I'm glad Ash is looking around. And I'm glad Ash is asking the question.
Look, I know banks want to make a buck. And fair enough. Turns out Ash's bank, CBA, actually made less money last year, in part because of lower interest rates.
But, in this instance at least, that's CBA's problem, not Ash's.
Accepting a piddly rate, just because CBA can't or won't do better would be a terrible outcome.
After all, using just the rates quoted in the question, there might be more than three times the interest on offer, just by switching.
No, 1.35% doesn't seem like much, does it?
But let's do the numbers:
If Ash has $10,000 in that account, the CBA rate will deliver $40 in interest. At 1.35%, that's $135.
If Ash is well on the way to a deposit, with, say $50,000, that's $675 to $200. And you can (obviously) double that amount if you have 100 grand.
No, the interest won't buy you a sheep station, but it's better in your pocket than the banks.
Now, the Australian Securities and Investments Commission (ASIC) is pretty strict on what you have to know before you can give someone personal advice.
So I can't tell Ash what to do.
But I can comment generally. And my thoughts are pretty clear.
As I've said in other contexts, if your bank is your favourite charity, then by all means accept a crappy interest rate for your loyalty.
But, if not, switch!
Yes, #getabetterrate
Would I change banks if I only had $1,000 in my bank account? Probably not. The difference in interest is (unfortunately) less than a dollar a month.
But any more than that – particularly if you can do it online, from home in your pyjamas? Yep, I'd be getting out of there.
Where to?
Well, this is where it gets tricky. And Ash's example is a good one. See, the Barefoot Investor himself, Scott Pape, sent an email to his readers only this week, in which he mentioned that there were some new conditions being set by ING.
A brief, important, interlude:
Before we go any further, a disclosure: I was paid a small sum by ING in the middle of last year to take part in an online ad campaign where I talked about the importance of Super and investing. It was to be a 'branded' campaign, but I didn't talk about, nor endorse, ING products.
In the event, ING didn't run the campaign, but I was still paid for my time.
I told the agency any payment wouldn't change my view – or how I expressed it – of ING then or in the future. And it hasn't. They had one of the best savings products in the business, but now it's come right back to the pack, as I lay out below.
I've never pulled any punches, and I'm not about to, now. But you deserve to know that background, as you continue to read my thoughts, below.
Now, back to the show…
So I looked up the ING website:
"Add Orange Everyday to your Savings Maximiser, deposit your pay of $1,000+ each month and make 5+ settled card purchases (not pending) each month.
"Additionally from 1st March 2021, grow your nominated Savings Maximiser balance so that there's more in it at the end of the current month (excluding interest) than there was at the end of the previous month. Then the following calendar month, this rate's yours."
Bloody hell. That's got more steps than a military parade.
All they need to add is "last, subtract your age", and Copperfield would be proud.
Let's just break down the last bit of those conditions:
1. You have to know your last month's balance.
2. Then make sure there's more at the end of the current month.
3. But don't forget to subtract any interest you earned.
4. And then – if you've followed all the rules – you'll get more interest… next month!
And if you don't?
Well, the advertised (conditional) 1.35% drops to…
… wait for it …
0.05%
Yep – that's a 96.3% reduction.
Cop that!
Oh, I'm sure ING have their reasons. In fact, I'm sure there's an FAQ ready to go which talks about costs and planning and prevailing interest rates and all sorts of other important things.
I'm not even sure any of it would be wrong, as such.
But it doesn't mean it's particularly user-friendly.
Remember the old ING ads with Billy Connolly?
The ones he finished with "… and make the buggers work for your money!"
Yep.
Feels like ING is making us do all the work this time around, doesn't it?
The bad news?
ING probably did it because the other banks do, too!
I jumped onto Canstar this morning, to compare interest rates.
Frankly, they all give terrible 'base rates', with higher rates only if you jump through hoops:
- HSBC: "Increase balance by $300 p/m, not including interest."
- 86 400: "Deposit $1000+ per month, either Pay or Save."
- Australian Unity: "Min $250 dep and no withdrawals."
- BOQ: "Deposit $1000 + 5 eligible transactions in linked Day2Day Plus Account."
Seriously…
And those that don't have conditions seem to be largely the 'honeymoon' rate variety – you get the higher rate for the first few months before it drops back to essentially zero!
Do I think ING is bad? No, I don't. At least, no worse than the others. But they're less easy to deal with – and to understand – than they used to be, and that's a shame.
So I've gotta say, Ash, my first answer is easy.
Should you switch? Yes, absolutely.
But to what?
Unfortunately, you're going to have to trawl through the various options (using something like Canstar can make the process easier – just make sure you 'untick' the "Only show results which link to a provider's website" button so you get the biggest range of options).
The good news is that I'm pretty sure you'll be able to secure a much, much better rate, that suits your circumstances and your spending and saving patterns.
Either with one of these 'high return savings' accounts or, if it suits your circumstances (say, you won't be adding, but also not needing the cash), the good old fashioned term deposit account might be worth considering.
Just – as always – make sure that you understand all of the conditions before plonking down your cash!
That's how you #getabetterrate
Fool on!
