Barefoot Investor: You don’t understand how this column works

A reader wrote to Barefoot Investor Scott Pape to tell him last week’s column was “one of the most irresponsible financial articles I have read for some time”. Pape didn’t hold back in his response.

The Barefoot Investor offers advice on basic transaction accounts. Picture: Supplied

Interest rates are officially at their lowest, ever. Which means things are grim for savers.

So today I’m going to make sure you are not being rogered by your bank.

Scroll down to read Pape’s Q&A with readers.

And there’s a lot of it going on: for example, did you know that, according to comparison site Mozo, banks cut rates on 59 separate savings and term deposit accounts in the month before the latest RBA decision?

That explains why the Financial Review last week reported that 80 per cent of savings accounts were actually losing money after the effects of inflation.

They’re like the Oliver Twist of finance! More? You want more interest? (Ask your parents.)

OK, so let’s talk basic transaction accounts.

I like a “Steve Waugh” (all-rounder) type of account, which is why I have steadfastly stuck with ING’s Orange Everyday: It has zero fees (including no international fees), pays decent interest (up to 2.8 per cent), and makes it easy-peasy to maintain my buckets.

Yet I’m not paid to promote anyone, so what about the competition?

Like Oliver Twist, you may want more — from your bank account.

ME Bank is good, though their tech feels like it was built by the same team that made Sputnik.

On the other hand, Up Bank (a division of Bendigo Bank) has great tech and offers competitive rates on all your buckets … but it’s still a work in progress as they roll out their feature set.

Now let’s talk Mojo (savings) accounts.

I use UBank’s USaver, which pays 2.87 per cent ‒ although you have to keep contributing $200 a month to maintain that rate. Still, if you’re boosting your Mojo, that works.

And the competition?

Well, there’s a bunch of online savers that pay bonus interest bribes, but they all fizzle out after a few months and revert to lower ongoing rates. Then again, the best of them revert to rates between 1 per cent and 1.8 per cent, which is still better than the vast majority of accounts out there.

Finally, if you want to lock in your money, the best 12-month $100,000 term deposits are with Arab Bank and Teachers Mutual (both at 2.7 per cent), though it’s a slippery dip from there (say a prayer for the retirees!).

Fact is, cash is trash at the moment and it’s only getting worse.

Roger that!

Tread Your Own Path!

Q&A

YOU’RE A SHOCKER, BAREFOOT (PART I)

WAYNE WRITES: Your “shock/horror” credit card piece in the Sunday Herald Sun was one of the most irresponsible financial articles I have read for some time.

My wife and I (73 and 78 years old respectively) have been using credit cards for everything since they came into existence. Each month we only have one bill to pay, and it is paid on time every month — very convenient! A more positive article would have explained the virtues of credit cards and how to use them wisely.

BAREFOOT REPLIES: You don’t seem to understand how this column works.

It’s not my job to explain the virtues of credit cards and how to use them wisely!

(I’ll leave that to Commbank, which teaches this to nine-year-old kids who attend their schools education program.)

Now, you gave me a backhander by saying I wrote “one of the most irresponsible financial articles” you’ve read for a long time. (I can imagine the bankers reading this would be giving you a golf clap: “Hear, hear! Finally someone gave it to Barefoot! You’re a jolly good sport, Wayne old boy!”)

Well, let’s talk about financial irresponsibility:

As you know, the banks do their best to lure people, especially young people, into taking up credit cards.

the banks do their best to lure people into taking up credit cards.

The reason is obvious: while interest rates have fallen to their lowest, the average credit card interest rates haven’t budged from 18 per cent since Allan Border donned the Baggy Green.

Yet at least the original Bankcard didn’t have a membership fee. Annual fees on today’s credit cards have been increasing by more than 20 per cent a year to an average of $135 a pop, according to Canstar.

At the same time, the value of credit card rewards points has been slashed. Last year a report by comparison site Mozo found that they were virtually worthless, plummeting a staggering 96 per cent since 2016.

Look, I get that some people — like you — pay off their cards on the due date and get a 55-day interest-free loan.

However, the truth is that for most people — particularly the young and the vulnerable — they’re a debt trap.

Wayne, it’s these people who are subsidising your interest-free loan. So who’s being financially irresponsible, sport?

YOU’RE A SHOCKER, BAREFOOT (PART II)

RICKY WRITES: Your article “Prisoner’s Last Chance”, about the prisoner coming into a six-figure sum of money, is the most disrespectful article I have ever read.

You tell the guy “good on you for learning how to manage your money” and give him advice on how to invest, then gloat about how you donated your books to prisoners. How shallow are you?

What about telling him to clear his conscience and pay back the money he probably stole from victims, or compensate those he has offended against. Come on! I’m disgusted in you not telling him to give his six-figure sum to victims he most likely never had the mind to compensate.

I challenge you to say in one of your articles that you offered wrong advice on this matter and should have told the person in prison to compensate those he did wrong by. Bet you won’t.

BAREFOOT REPLIES: I bet I won’t either, cobber!

It sounds like you (or someone you love) has been wronged by someone, and you’re still bitter and beat-up about it. Here’s how the prisoner described his situation:

“I have spent most of my life in institutions, from boys’ homes to jails (I’m 59). My goal is to have enough money to buy my own home before I die, with no debt and maybe some savings. After all, isn’t that every man’s dream?”

Now, here’s my thinking:

I don’t know what crimes he did … and neither do you.

Though I do know one thing: after doing their time, everyone deserves a chance to put their lives right.

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And if he can achieve financial security, he’s more likely to stay straight and not end up back in the clink.

That’ll potentially save the taxpayer the $110,000 a year it costs to keep a prisoner locked up.

That’ll also help keep the community safe.

And it may just give this bloke some peace after a lifetime of pain.

DOLLARMITES OUT OF SCHOOL!

SUSAN WRITES: Yay! You made it into the Yarraville West Primary School newsletter:

“After consideration, school council has decided that Yarraville West PS will no longer host the CBA Dollarmites banking program. Financial literacy is important, perhaps now more than ever. There are independent educational initiatives available for your family to investigate together, such as the federal government’s MoneySmart and books like Scott Pape’s Barefoot Investor for Families.”

Thanks for educating our educators!

BAREFOOT REPLIES: Thanks for sending this through!

Just to clear things up, my new school program isn’t about me selling books (I’ve sold enough already, and anyway, I’ve donated a copy to every school library in the country).

This is a non-profit program, and it’s funded from my own pocket (no funding from banks!). That way, I’m free to explain to the kids how much of a rip-off credit cards are, why Nimble loans suck, and the hidden cost of UberEats.

Check for hidden costs in UberEats. Picture: Josie Hayden

Now, since I launched the Barefoot Money Movement a few weeks ago, I’ve had thousands of teachers apply to pilot the program later in the year, from schools across the country and around the world.

My biggest discovery?

We are truly blessed to have so many hardworking teachers educating our kids.

Seriously, they’re passionate about their students and are determined to ensure they learn these lessons.

It’s been a very humbling experience.

If you have a burning money question, go to barefootinvestor.com and #askbarefoot.

 

The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice.

 

The Barefoot Investor for Families: The Only Kids’ Money Guide You’ll Ever Need (Harper Collins) RRP $29.95

Originally published as Barefoot Investor: You don’t understand how this column works