Every now and again YOURLifeChoices receives a question on a topic which is obviously of great concern to our members.
We received a letter from the Commonwealth Bank (CBA) today which made interesting reading. You may already be aware of what I am about to cover.
Below is the main text for your information. It is in regards to deeming rates on pension accounts. I have no concern in the Government changing the interest rates, if it was indeed the Government doing this, however, I notice the bank is changing its manner of dealing with the interest.
We're making some important changes to your Pensioner Security Account. Please be assured that all of the great features of your account are here to stay, including no monthly account fee and competitive Interest rates. You can also enjoy peace of mind knowing your savings are secure with the Commonwealth Bank.
What is being changed?
On 1 July 2012, the federal government announced changes to the social security deeming thresholds. The threshold for singles has been increased from $44,600 to $45,400. To make sure that we are aligned to the government tiers, we will be updating our interest rate tiers from 1 September 2012. We've outlined these new tiers below.
|Balance Amount (tiers)||Interest Rate|
|Over $45,000||4.50% p.a.|
|$2,000 up to and including $45,000||3.00% p.a.|
|Less than $2000||1.25% p.a.|
We are also changing the way that we calculate interest on your account to make it simpler and easier to understand. From 1 September 2012 interest will be paid on the portion of your bank balance that falls within each tier at the rate applicable to that tier. For example, if you have $50,000 in your account, you'll earn 1.25% p.a. on the first $1,999.99, 3.00% p.a. on every dollar between $2,000 and $45,400 and 4..50% p.a. for the remaining $4,600. We will also be increasing our bottom tier interest rate from 0.10% p.a. to 1.25% p.a. to help you make the most of your money.
If you read the third paragraph in regards to how the bank is proposing to calculate the interest, you will see that the interest rate for an account holding over $45,400 will be 4.5 per cent. However that will only be paid on the monies in excess of the $45,400. Everything else would be marginally less than three per cent.
I recall that the banks, when you reached an amount where the interest increased, used to pay the higher rate on ALL the funds in the account.
Am I mistaken or is this another ruse by the banks to cut into the funds of their account holders? It will certainly give the banks a massive boost in their coffers by not having to pay the higher interest rates on most of the funds held by senior citizens.
Is it only the CBA which is pulling this stunt at the moment or is it all the banks?
Why isn't the Government acting to protect the self funded retirees and age pensioners?
Perhaps it is time for us to start the Seniors Party and arrange for all senior citizens to vote. After all we are nearly 25 per cent of the population now and we would only need to have the power of veto in the Senate — not actually run the country.
Ian, this will indeed make a difference to the amount of income you receive from your savings and we understand your concern that this is being implemented without any consultation.
Firstly, the Federal Government did implement changes to the Social Security Deeming Thresholds on 1 July 2012. From this date, a deeming rate of three per cent will be applied to the first:
- $45,400 of a single income support recipient's total financial asset,
- $75,600 of a pensioner couple's total financial assets,
- $37,800 of the total financial assets for each member of an allowee couple.
A deeming rate of 4.5 per cent applies to financial assets above these amounts. You can obtain more information on how deeming is applied to accounts from the Centrelink section of the Department of Human Services.
Secondly, we contacted the Australian Bankers’ Association Inc (ABA) to enquire if all banks were implementing the changes to the way in which interest was being paid. This is not the case. The changes detailed in your letter are how the CBA has chosen to respond.
We also contacted the CBA to ask for a response on why it had changed its way of paying interest. The response was as follows:
Commonwealth Bank implemented amendments to deeming accounts to be effective from September 1, which will see tiered rates apply. The rationale was to ensure that the way we calculate interest is simple and easy for customers to understand. As part of these changes all customers will benefit from an increase of our bottom rate from 0.10% to 1.50% and rates.
Ian, we hope this clarifies the position with the changes to deeming thresholds and the payment of interest in your account.
You may however, wish to consider further action. We would suggest that you check the terms and conditions of the agreement into which you entered when you opened your account with the CBA. If it is stated in the agreement how your interest is to be paid, then you can ask the CBA to advise under which clause it has made the changes. You may also wish to consult the Code of Banking Practice, which you can find on the ABA website, for further information on the obligations of your bank to advise or consult you before any changes are made. If you do not receive a satisfactory response, then you can refer the matter to the Financial Ombudsman Service.
You do of course have the right to switch banks. The Government has implemented legislation under the Australian Banking Reforms to make switching banks simpler. As these contentious changes are not industry wide, you may be able to find a bank which will pay you the higher rate of interest on the whole balance of your account. You can find out more about your rights under the reforms at Bankingreforms.gov.au.
Finally, your idea of a seniors party has been mentioned many times before by YOURLifeChoices members and I’m sure such a party would make a formidable opponent in any future elections.
What do you think? Is it time for senior Australians to put their hats in the ring and fight politically for more rights?
Do you have any information on how your bank has elected to pay interest on senior accounts, which may assist Ian with his choice? Or has your bank also opted to make a grab for your money?
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