Interest Rate Boondoggle !

"  Honest " marketing seems to be a thing of the past.  Most people are getting phone calls from overseas telemarketing sources trying to persuade them to change their electricity supply provider.  The incentive is usually a very tempting discount but what is left unsaid is that this is an " introductory offer " - and the bill will revert to normal rates after a short period of time.

It seems that this dishonest tactic has spread to the banking world.  Interest rates on deposits are historically low but many people who take the trouble to analyse their statements will find that some have shrunk to less than one percent.

The banks very quietly introduced a " base rate " change which applied to  the interest they pay to long term customers while introducing " introductory " interest rates to attract new depositors.  These higher rates only apply for the first three to five months after that new account is opened.

This  tactic was put in place just as the mortgage market eased.  The banks no longer need to aggressively chase domestic savings which is their usual source of funding.  The bigger the gap between what they pay in interest for deposits - and what they charge to borrower is reflected on what profit they declare at the end of each financial year - and today our " Big Four " report profit in billions.

This entire money market - banks, building societies and credit unions - have put a cap on the interest they pay to small accounts.  Deposits ranging from $ 2,000 to $ 5,000 get no interest at all.   Of course this vast accumulation of the modest savings of pensioners and those on low wages is used to finance mortgages and overdrafts at normal commercial rates and returns handsome profits to the banks - but not to their depositors.

It seems that to get even a low rate of interest bank customers need to apply the tactics now prevalent in the electricity industry.  Sign up and enjoy those low rates for as long as they last, and then quickly take up the next tempting offer.   There is no joy in being a " loyal " customer because in today's world loyalty rewards are just a myth.

The customer with a long term, modest savings balance getting either low or no interest and being confronted with a sudden expense - such as the need to finance a funeral because of a partners death - can expect no mercy from the banks.  An application for a loan is usually rejected, and sometimes the applicant is offered a MasterCard or Visa account, with interest rates of twenty percent.  At least that seems preferable to forcing them into the hands of the " until payday " lending industry, which is usually the only other option.

Retirees taking a lump sum superannuation payment need a safe investment that pays a decent rate of interest to make their nest egg cover living expenses.  It is not helpful that the banks are now deliberately confusing the terms that apply to serve their own interests.

For far too long the banks have been allowed to formulate banking practice in-house and with very little interference from the government supervising agencies.   The calls for a Royal Commission are growing louder and the more that these scams become common practice the surer that they will eventually be publicly examined.

The banking industry is an integral part of the economy and good ethics are essential !