Why this bank account will get you an extra $3779
Lenders are “recasting their marketing net” to target younger savers, but these account holders have been reminded to look beyond the spin to potentially make up to $4000 in extra interest.
According to RateCity research, there are 15 lenders offering exclusive interest rates to those aged 35 and younger as they attempt to entice and retain younger customers. That’s up from seven banks in 2018.
RateCity research director Sally Tindall advises people to think twice before taking out a savings account marketed at their age group. Michael Quelch
Morningstar banking analyst Nathan Zaia says banks are going after younger borrowers because they tend to have smaller balances, so the businesses can potentially score life-long customers with relatively small expenses in interest payments.
“The main reason is to build relationships with more customers. If you build a relationship with them young, there’s some customer loyalty,” he says.
As people switch savings accounts, and more borrowers use mortgage brokers, the battle for business has become tighter, he adds.
“People are switching more, they’re less sticky, so that’s a trend that banks are going to have to fight again. And this is one way [to do that]. Get someone when they’re young and give them all the products and tools to keep them satisfied.”
The fine print
But Sally Tindall, RateCity research director, says just because an offer is marketed as exclusive to a certain age group, it isn’t automatically a better deal.
In fact, of the 15 banks offering special rates to young adults, only four of those are among the overall top 10 accounts offering the highest ongoing savings rates.
“The highest ongoing savings rate in the market is 5.65 per cent from ME Bank. While the account will only pay the maximum rate on balances of up to $100,000, it’s available to all Australian residents over 14,” Tindall says.
That means a borrower with an initial deposit of $75,000 who took out an ME HomeME account and deposited $1000 a month would have $91,670, earning $4670 in interest a year. If they were to deposit the same amount in a big four bank online saver, such as Westpac’s eSaver, offering a 1.1 per cent rate, they would have $87,891, earning just $891 in interest over the year.
That’s a difference of $3779.
To access the 5.65 per cent rate with the ME HomeMe account, savers need to deposit at least $2000 into a linked transaction account and make four transactions, while also growing their HomeME savings account every month.
But Tindall adds that regardless of who the products are marketed to, savers need to be sure they can clear the “often-onerous” monthly terms and conditions to access the bonus savings rate.
For example, a saver who took up the Bank of Queensland’s Future Saver, available to those aged 14 to 35, could earn an ongoing rate of 5.5 per cent.
However, if they fail to meet the monthly requirements to deposit at least $1000 into a linked transaction account, make five transactions, and increase their savings balance, the rate falls to just 0.05 per cent.
Most of the leading rates require savers to deposit between $1000 and $2000 into a linked transaction account and make five or more purchases using that account every month, while also increasing the balance in the savings account.
“The last thing you want is to switch your savings over to a high-interest account, only to wake up in a pool of sweat on the last day of each month remembering you haven’t yet cleared the necessary hurdles,” Tindall says.
“Take your nest-egg shopping for an account that suits your savings goals but also your lifestyle. There are 18 banks offering ongoing rates over 5 per cent. However, if you are looking for one with no monthly terms and conditions, you’ll have to settle for a maximum ongoing rate of 4.65 per cent.”
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