ACCC finds hidden hurdles, fees, keep savings in low-rate limbo

The regulator says banks use strategic pricing that takes advantage of consumer inertia and has proposed reforms to allow easier switching. See how your bank compares.

ACCC chair Gina Cass-Gottlieb says refroms are needed so customers can move to retail deposit products that better meet their needs. Picture: Aaron Francis / The Australian

Despite banks touting fierce deposit competition, an inquiry by the Australian Competition and Consumer Commission found little evidence of it.

The regulator now wants the Albanese government and banks to fix that and give savers a real shot at higher rates.

The 2023 review of the $1.4 trillion retail deposit market found customers languish in lower-interest accounts due to persistent hurdles to compare and switch products.

In a 161-page final report, published on Friday, the ACCC found “little evidence” of aggressive price competition for deposits. Instead, the report says banks use strategic pricing that “takes advantage of consumer inertia and other biases to reduce the overall cost of their deposit funding”.

The competition regulator also found customers get fleeced by hidden pricing tiers. Banks slice and dice deposits with sneaky product designs and conditional rates, leaving identical accounts earning wildly different returns.

This and switching barriers, including how hard it is to compare deposit products given comparison sites are often incomplete and don’t reflect effective rates, results in bank customers missing out on higher interest from savings, the regulator said.

“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,” ACCC chair Gina Cass-Gottlieb said.

In fact, the study found that about 71 per cent of so-called “bonus” interest rate accounts that offer higher deposit rates if certain conditions are met, don’t receive the rate on offer at all, and many banks don’t even track whether customers do.

The report makes seven recommendations to increase transparency, customer engagement and reduce barriers to switching, including compelling banks to tell customers when they change their interest rates, and prompting them to consider moving to a better rate.

Ms Cass-Gottlieb said she hoped the report would raise awareness among bank customers and that if the Albanese Government heeded the recommendations, it would make it possible for savers to get “the most out of their savings and move to retail deposit products that better meet their needs,” she said.

Treasurer Jim Chalmers acknowledged the report, which the government commissioned in February, and said it would respond to the recommendations in 2024.

“We expect banks to treat their customers fairly when it comes to their savings accounts,” Dr Chalmers said.

“Just as we want Australians to get a good deal on their mortgages, we want savers to get the benefits of higher interest rates.”

The recommendations also include forcing banks to alert their customers when they are about to lose an entitlement to their bonus rate, for example because they withdrew more than what was set in their conditions or because they went above a number of withdrawals.

The ACCC also wants the government to review the merits of “bank account portability” which would make it a lot easier to switch banks as customers would keep the same account numbers even if they moved. This would not then have to change payment details for recurrent payments if they changed banks or account types.

“This would not only improve outcomes for Australian consumers, but help drive competition between banks for retail deposits,” Ms Cass-Gottlieb said.

Other recommendations include ongoing monitoring of deposit pricing and competition levels in the market, clearer disclosures of introductory rates, as well forcing banks to report on the proportion of “bonus” accounts that actually receive said bonus interest rate per month.

“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,” Ms Cass-Gottlieb said.

Banks should also report on the proportion of accounts receiving the bonus interest rate alongside promotional material for each product, the report recommended.

The banks, through the industry lobby group, said the report showed competition in the Australian banking sector “is strong in the Australian context.”

The group also repeated earlier messaging saying banks had paid more in interest on deposits (including through non-retail products like business, corporate, and institutional client accounts not covered by the inquiry) this year, than what they had received in interest payments from mortgages.

“2023 has seen highly competitive market forces at work in banking from which consumers are the clear winners,” Australian Banking Association chief executive Anna Bligh said.

To this, Ms Cass-Gottlieb said the report actually showed a “different view in relation to competition.”

“There are many banks offering deposit accounts and term deposits, but we have found that ... it is not that the banks are competing very directly and competing in the basis of price,” said Ms Cass-Gottlieb.

Instead, banks are engaging in “below-the-line competition” - targeted offers and negotiated rates hidden from public fees - to keep customers loyal and win new ones, all without denting profits or margins. “All of these practices we think are...introducing greater complexity rather than delivering the direct benefits of open competition in the market.”