Big four banks lose customers

Borrowers are voting with their feet and taking their business elsewhere. Figures from the Bureau of Statistics show that 35 per cent of all home loans taken out in 2011-12 were for refinancing and that the smaller banks won 24 per cent of the growth in home loans.

New lending actually fell in 2011-12, but the amount of money borrowed increased by eight per cent, confirming further the trend in refinancing.

The removal of exit fees is being credited with the push from borrowers to seek alternative lenders and secure themselves a better deal. A spokesman for Treasurer Wayne Swan said that the figures show the Government’s banking reforms are working by stirring competition and assisting customers to make the switch.

“People are taking advantage of our ban on mortgage exit fees,” he said. “This has put more power in the hands of Australian families: they can walk down the street to another lender if their current bank isn’t looking after them.”

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What about the savers

Well done to the Government for making it easier to switch banks and giving borrowers genuine choice when it comes to taking on a mortgage, or refinancing loans.  The new banking reforms have helped people take advantage of falling interest rates and shown the big banks that customers are no longer the cash cow they once were. Unless of course you are a saver rather than a borrower.

The lowering of the cash rate over the last year has hit those with savings accounts hard. Living on a fixed income is difficult enough without that income being gradually eradicated. The banks have always been quick to raise interest rates on borrowing when the Reserve Bank of Australia (RBA) raises the cash rate, but not so quick to respond when lowered. But it seems that those who are relying on the interest paid on savings accounts are treated even more shabbily. Not only are the banks slow to increase the interest rates and quick to reduce them on saving accounts, it seems they are also looking for new ways to reduce the interest paid altogether.

Two weeks ago we answered a question from Ian who holds a deeming account with the Commonwealth Bank of Australia (CBA). Not only have the deeming rates applied by the Government changed, but the CBA has also chosen to change the way in which interest earned is paid. Rather than paying the higher rate of interest on all the money in deeming accounts, it will now only pay this rate to the amount above the high-interest threshold. This will potentially cost Ian and customers in similar positions thousands of dollars each year – thousands of dollars that many can’t afford to lose.

So what has the Government done for savers? Nothing.  Sure, you can switch banks and look for a better deal, but there are few financial institutions which are paying a decent rate of interest on savings, they simply don’t have to. On the other hand, if you are borrowing money, the banks can’t give it to you quickly enough. With refinancing in the year 2011-12 accounting for 35 per cent of all new loans and, the amount borrowed increasing by eight per cent, it seems we are, more than ever, a nation happy to live on credit. In a period of falling house prices, surely this can’t be good?

Is this really the message we want to pass on to the next generation? That working hard and saving your money is a waste of time. That it’s better to borrow as much as you can and simply change banks every few years to get a better deal. Somewhere along the way I think our priorities have become a little skewed. As the saying goes, neither a borrower nor a lender be!

Has Debbie got it right? Or does it make more sense to borrow on the never-never rather than save all your working life?

Written by Debbie McTaggart