The competition watchdog urges reforms for consumer benefit
The Australian Competition and Consumer Commission (ACCC) has revealed challenges in retail deposit products, hindering consumers from maximising savings, and proposed seven recommendations for increased transparency and better consumer outcomes.
Amid rising mortgage rates in Australia, ACCC’s Inquiry into retail deposit products highlighted the potential for increased interest on savings.
“Increased interest on savings should be a silver lining from the higher mortgage rates Australians are now experiencing,” said Jim Chalmers (pictured above), treasurer. “Just as we want Australians to get a good deal on their mortgages, we want savers to get the benefits of higher interest rates.”
Retail deposit barriers limiting consumer benefits
The ACCC’s final report reveals that consumers are missing out on higher interest due to barriers in searching for and switching between retail deposit products.
Strategic pricing for retail deposit products, including introductory and bonus interest rates, and fees and charges, create complexity, making it challenging for consumers to compare offerings.
While banks commonly use bonus and introductory rates, the report revealed that, on average, 71% of bonus interest accounts did not receive bonus interest in the first six months of 2023.
Banks also segment customers with product design and conditional interest rates, creating notable rate variations within comparable products, even within the same bank.
ACCC’s measures for improved consumer outcomes
ACCC made recommendations to ease customer access to beneficial savings products. These include continued monitoring of market competition, enhanced transparency in pricing and customer outcomes, proactive customer notifications, and steps to facilitate product comparisons.
“Our report has recommended measures to make it easier for customers to get the most out of their savings and move to retail deposit products that better meet their needs,” said Gina Cass-Gottlieb, ACCC chair.
Consumers rely on retail deposit products, like savings accounts and term deposits, to securely store over $1.4 trillion in savings, manage everyday banking, and crucially, to earn a respectable return on their funds.
“While high headline interest rates may seem attractive to customers, they can come attached with conditions that are hard for customers to meet and keep track of,” Cass-Gottlieb said.
Simplifying consumer switching
To address challenges in switching between banks, ACCC urged the government to consider bank account portability. This reform aims to simplify the process, encouraging consumers to take advantage of better rates and fostering healthy competition among banks for retail deposits.
“We understand that it can be difficult and time-consuming to switch between banks,” Cass-Gottlieb said. “Bank account portability has the potential to greatly simplify this process for consumers to switch and take advantage of better rates. This would not only improve outcomes for Australian consumers but help drive competition between banks for retail deposits.”
Ensuring customer awareness
The report called for mandatory communication from banks regarding interest rate changes and urged alerts to customers on potential loss of bonus interest entitlements, addressing concerns about transparency and fair treatment.
“We are also recommending that banks alert their customers if they are about to lose entitlements to their bonus interest, for example by withdrawing too much or too often in a given month,” Cass-Gottlieb said. “During our inquiry, we were concerned that several banks could not tell us how many of their customers had missed out on bonus interest, or which specific condition they failed to meet.”
Banks’ funding needs and interest rates
In its report, ACCC said banks rely on retail deposits for nearly 30% of their funding needs on average, with some banks, such as mutual banks, more reliant on retail deposits than others.
It explored how the Reserve Bank of Australia's cash rate target influences interest rates but emphasised that broader factors also play a role, contributing to varied rates across banks.
These factors include broader funding requirements, profitability, economic and regulatory factors, likely customer responses and the competitive landscape. Also influencing interest rates for the same retail deposit product are strategic pricing at the product and individual customer level.
Background and government response
The inquiry, initiated in February 2023, marks the end of ACCC’s financial services competition program. The report draws on 51 submissions and sets the stage for potential government reforms.
The ACCC's recommendations, presented to the Albanese government, align with the commitment to fair treatment of bank customers. The government pledged a response in 2024 and highlighted its dedication to fostering competition through a Competition Taskforce Advisory Panel and Review.
Read the retail deposits inquiry final report. The ACCC media release can be found here. For the media release from the Treasury, click here.
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