The big four banks are a law unto themselves

IT looks increasingly like the Government doesn’t have the ticker to beat the banks. So the Barefoot Investor is giving his own judgment.

I find the Big Four guilty of serving up terrible transaction accounts, says Barefoot Investor.

IT looks increasingly like the Government doesn’t have the ticker to beat the banks.

Well, bugger it, let’s have our own royal commission into banking misconduct.

Let me grab my gavel and my girly wig.

The Court is in session, the dishonourable Judge Barefoot presiding. Order, Order, Order ...

BEST EVERYDAY BANKING ACCOUNTS

I HEREBY find the Big Four guilty of serving up terrible transaction accounts. If you have money in a transaction account, you are literally going backwards.

Exhibit A is the CBA Smart Access transaction account, which pays “0 per cent” interest on any balance.

Factor in inflation running at a historical 3 per cent, and the banks are peeling you like an onion (though they’re not crying, they’re laughing all the way to, well, the bank).

The bottom line is that you shouldn’t pay for basic banking.

That means no monthly fees, no transaction fees, and no ATM fees regardless of which machine you use.

None of the banks offer this deal, of course. Here’s who does:

ING’s Orange Everyday account has no fees whatsoever.

They recently ditched their tap-and-go cash-back rewards program — a corker of a deal which saved people over a thousand dollars each over the last few years.

But all good things come to an end … when the marketing department decides they’ve reached their quota of customers.

ME Bank’s Everyday Transaction Account is the only other player in the no-fees space. It charges zero fees and reimburses you for any ATM fees you’re slugged with. But like the rest of them, both these players pay bugger all in interest, which leads me to online savings accounts ...

BEST PLACES TO STASH YOUR CASH

I HEREBY find the entire banking industry guilty of ‘bait and switch’ pricing. The highest paying online savings accounts all have complicated ‘bonus’ rates to attract customers (bait).

At some stage they’ll dial down their ‘bonus’ interest rates and see how many customers stick at a lower interest rate (switch).

ING did it years ago when they pioneered their online saver account.

They’ve just done it again with their Orange Everyday Saver, passing on the full interest rate cut and now paying 1.75 per cent.

Now, let’s serve it up to the banks again.

I also find the banks guilty of spin.

When the Big Four failed to pass on the RBA’s full interest rate cut — trousering $917 million in the process — they spun the line that they were softening the blow by increasing the interest rates on term deposits.

Sounds fair, I guess. Even the Treasurer took the bait.

Except that figures from Canstar show that term deposits represent just 16 per cent of outstanding home loans … and the higher rates of course only apply to new deposits, not existing ones.

Honestly, I wouldn’t be bothered with term deposits. Instead, I’d look at:

The ME Bank Online Savings Account, which pays 3.35 per cent — the best rate getting around, even better than what you’ll get by locking your cash away on a term deposit for a year.

Of course the ME marketing team have been hard at work conjuring up bribes to get you committed to their product: you get a base rate of 1.55 per cent plus a ‘bonus’ 1.8 per cent each month, if you make a purchase by PayWave once each week with your debit card.

Still, there are no minimum monthly deposits and you’re not penalised for making withdrawals.

Another option is the RAMS Saver.

It pays 3.15 per cent (1.5 per cent plus a 1.65 per cent bonus). You’ll get the bonus on savings of up to $500,000 when you deposit at least $200 and make no withdrawals each month.

THE ULTIMATE SIN

RIGHT now, global interest rates are the lowest they’ve been in “5000 years”, according to Bank of America.

Yes, right now credit is cheaper than at any time since the First Dynasty of ancient Egypt … and we all remember how flashy the Egyptians were with their look-at-me pyramids and their blingy gold pharaohs.

The banking industry has studied the Egyptians and come up with their own gold, silver and platinum trinkets: they pay you nothing for the money you deposit, then lend it out to your broke brother-in-law at 21 per cent interest on his gold credit card.

Yes, it’s no secret that I hate credit cards. For me, the best credit card is no credit card.

Roughly 30 per cent of Aussies fail to pay off their card each month.

And when they don’t, they’re stung with interest rates of up to 24 per cent.

With a balance of $4300, the average credit card is racking up around $840 each year in interest — compounding.

It will take 27 years to pay off that debt, and cost around $14,500 in interest if you make minimum repayments.

If you’ve got the average $4300 credit card debt, here’s what you need to do:

Step 1: Cut up your credit card.

Step 2: Apply for the Vertigo Card (from Bank of Melbourne, St George Bank or Bank SA) with 18 months interest free on balance transfers.

Step 3: Cut up the new Vertigo card when you get it.

Step 4: Pay off $110 each fortnight and it’ll be paid off in 18 months.

The final findings of the Barefoot Royal Commission are clear: the aim of every bank is to turn your money into their money.

Don’t let them.

Tread Your Own Path!

Originally published as The big four banks are a law unto themselves