Study Finds Australians Losing $10 Million A Day In Interest On Accounts Held With Big Four Banks

Post by Sharat on October 12, 2009 · Under Australian Economy, Business News, Online Savings Account, Savings, banking, interest rates · Comment

Australian depositors are losing approximately $10 million a day in interest payments, because of the mistaken belief that small regional banks are in danger of collapsing as a result of the global financial crisis.

Deposits have flowed in the coffers of the Big Four lenders, which in comparison to their smaller regional rivals, credit unions and building societies, offer lower interest rates.

Despite Prime Minister Kevin Rudd pledge not to let any financial institution, large or small fail, Australians still feel safer holding their money in accounts with a Big Four lender, which allows the Big Four banking groups to pay less in interest than smaller lenders pay.

Had Australians chosen deposit their savings with small regional lenders instead, savers would have collectively earned at least $3.6 billion more in interest over the last year, according to a research report commissioned by the Daily Telegraph and conducted by research firm Core Data.

Retail deposits held with the Big Four banking groups amounted to a record $356 billion, representing an 18 per cent increase in the same month last year, or a staggering $54 billion rise in deposits held with the Big Four.

The huge increase in deposits held with the Big Four banking groups came as a result of a flight to quality by depositors, caused by a global financial crisis, which prompted depositors to seek out banks which they perceived as being the safest, rather than those which offered the highest returns for their deposits.

In actual fact, the Federal Government guarantee of all deposits held by banks, building societies and credit unions, means that deposits held with smaller financial institutions are just as safe as those held at the Big Four.

High interest bearing internet accounts at the Big Four, under perform those offered by many smaller rivals by as much as 1 per cent, which according to Core Data, means that Australian depositors are losing out on as much a $10 million a day or $3.6 billion a year in interest.

The highest paying at call internet accounts offered by the Big Four banks, pay just 3 per cent in annual interest once introductory offers and conditions are stripped out. Smaller regional lenders, building societies, credit unions and even foreign banks who were also covered by the deposit guarantee, pay 4 per cent or more in annual interest, with no conditions attached.

This means for an individual who has $10,000 in savings, depositing that money with a Big Four bank means they would be forgoing an average of $100 a year in interest alone, or one third of the total interest paid by a Big Four bank, this despite the fact that there is no difference in risk.

This means that on $10,000 in savings, Big Four customers are giving up an average $100 a year in interest alone, or one-third of the total return made on online accounts at the major banks, despite no difference in risk.

Compare Australian Online Savings Accounts