Those Greedy Banks !

Since the start of the " Great Recession " of 2008 people who take their superannuation as a lump sum at retirement have had a problem.   They need to find a safe " investment " where not only will it provide living expenses for the rest of their life but will accumulate to take care of inflation.  

A vast trove of financial advisers claim the expertise to provide those services but it seems that the advice some give is tinged with self interest.  Many forms of investment offer commission as a reward for signing up retirees to their offerings and advisers may be temped to suggest whatever brings them the best reward rather than what best suits their clients interests.

Many retirees choose to manage their own retirement money and opt for the method used by their parents - and probably their grandparents.  Entrusting their money to a secure term deposit with one of the banks.  Not only were the banks guaranteed by the government but the money was safely invested in housing loans and financing Australian industry.  They also have the satisfaction of knowing at the start just what rate of interest will be paid during the term of that deposit.

Unfortunately, one of the first victims of the recession was interest rates.   Cheap loans probably fuelled the housing price bubble, but they have been disastrous for investors.  In some parts of the world interest rates have gone into negative territory.   The customer is actually charged a fee to keep their money in a safe bank account.

Fortunately, that did not extend to Australia but people who were used to getting an interest return of better that five percent on their money were dismayed to find half that was probably the best offer.  There are even promising signs that interest rates may soon rise but achieving the best rate possible requires individual dickering with each financial institution.  The rates change according to the length of the term deposit.

There is also an unwelcome practice adopted by the money market.   When a term deposit is reaching its renewal date the banks give their customers just seven days from its termination to withdraw the money in its entirety, add or change the amount and select a new deposit time frame.  This notice
advises that otherwise the balance will be reinvested for the same period as the expiring loan.

Astonishingly, the interest that will then accrue is less than that which applied to the maturing loan and less than what is offered in the accompanying schedule of interest by both volume and period. If the maturing loan was gathering interest at 2.5%, the bank intends to reinvest it at  just 1.5% if the investor does not make contact and instruct.   The accompanying notice of interest offering clearly indicates that a deposit of that magnitude for that period of time would attract that same 2.4% interest rate for that same period.

The banks are choosing reinvestment at terms that are in their own interest and totally disregard the best interest of their customer.  In fact, they are posing a penalty for failure to instruct.  Any change outside that seven day period will attract special punitive fees and charges.

It can only be construed that the greedy banks are capitalizing on elderly depositors who may be hospitalized or afflicted by the onset of Dementia to miss a renewal date. For whatever reason, they take the chance to lock in that money at a highly uncompetitive rate for its owner but which improves their own better bottom line.

It may be legally acceptable, but the moral aspect is another matter !