A Look at Banking

Date: 25 November 2009

It’s that time of the year when some of us like to look at our pearls, and get rid of the clutter.

This month, I’ve been doing just that with my wardrobe: trying to cull all the unworn stuff, and then consider whether I should sell or give away some out of dated bags and shoes. Now that my daughter is growing older, I have to keep an eye on her stuff too.

I always find it hard to change old habits; you could extend that analogy to other parts of life. I find it hard to let go of friends (even when they’re annoying), and I tend to leave everything in the same place in the house unlike another friend who moves her homewares around like a stylist.

One resolution for 2010 is to see what area in my life I want to change – and actually do it. Getting started on anything takes an effort; you could say that about money.

If you had to nominate one area of your financial life for change, what would that be?

We recently switched to a new financial planner, and found that although it’s been a bit of work in copying all the documents, it’s been really refreshing because we’re reviewing things that I took for granted or forgot about.

Firstly, she ran a risk test on us and found that my husband’s risk profile had become more conservative than myself – partly because of the age difference. She asked us about our insurance policies; in my husband’s case, his income has changed and so the income protection policy needs to be looked at.

Recently, I received a letter from a bank saying they’d switched the cash management account manager to someone I’d never heard of. I was tempted to leave things, but in the spirit of active management, I decided to move my money. This will take a lot of paperwork because of the large number of automatic debits in place. But I’m up for it.

Inertia is our enemy. Aussies are pretty inert about their everyday banking accounts, and only 3 per cent ever actually move accounts – and that’s usually when things go horribly wrong.

But now interest rates are starting to increase, we should all take a closer look at what we’re getting.

Another reason is the fees. We pay an average 22 per cent more on fees than British households and 11 per cent more than Americans. Choice says people swap credit cards freely, but not their everyday accounts. These tend to be quite sticky, they say, because changing direct credits and debits can be quite time consuming and too hard. The Government’s account switching package came in last year and the banks and credit unions agreed to speed up the processes on direct credit and debit arrangements. But it still doesn’t happen online and you still have to change the authorisations.

Recent research found one in four Australians want to switch, but don’t because they believe that banks are all the same.

And did you know that women are less likely to switch than men?

It’s a case of the devil you know.

Consumer research shows that most customers believe that banks need to be more honest when advertising, and also think that the fees charged are poor value.

However, people do rate shop and that’s why they open online savings accounts.

These accounts are often at call, offer higher returns and promise no fees and so they’ve given traditional accounts a real run for their money. Cash management accounts are similar but have minimum balances of several thousand.

If you’re switching for a honeymoon rate then you do need to watch out for any hidden traps. Research shows that we actually perceive our rate of interest on our money to be higher than it is. Sometimes people switch when they get a new mortgage or they marry and so the decision is more likely about lifestyle. Compare to credit cards and people are more willing to chase down a good deal. If you’re carrying debt then people will chase a better rate, and are sensitive about fees.

It all depends upon your circumstances. Bottom line, when there’s enough people exercising their rights, there’s competitive tension. Switching accounts should be easy and straightforward, and it’s not. But If you want to more info on your rights with switching, call 1300 600 360

All the best

Julianne

4 March 2009  "Why 2009 is Back to Basics"

22 September 2008  "Women, Marriage and Money"

12 December 2008 "The Road to A resilient New Year"