Bank alerts save clients billions
Customers have saved billions of dollars since Australia's banks began to disclose that high-interest-rate term deposits automatically roll over to much lower interest rates on maturity.
The Australian Securities and Investments Commission has released a report on the industry after a seven-month review in 2011. It focuses on the use by banks and mutuals of term deposits that automatically roll over on maturity, and "dual-pricing" marketing strategies to attract customers.
"Dual pricing" is when a bank promotes its term deposits by advertising the high rates available on a small number of term deposit periods, while maintaining much lower rates for all other deposit periods.
ASIC says a 2009 review of the industry found 47 per cent of term deposits automatically rolled over to much lower interest rates, worth an average $560 million a month.
But in the recent review - which took place after banks started disclosing the risks of dual pricing - only 11 per cent of term deposits automatically rolled over, worth $270 million a month. That means customers have saved at least $2.03 billion since they were made aware of the risks, the ASIC report implies. "This monthly rate provides a general indication of the change," an ASIC spokesman said.
The report comes as the corporate watchdog prepares to face a Senate inquiry after revelations in Fairfax Media that it took it 16 months to act on information from whistleblowers about serious misconduct inside the financial planning unit of Commonwealth Bank. Last month, Senator Doug Cameron said the inquiry would investigate a range of issues including financial planners, the Commonwealth Bank and ASIC.
The ASIC report reviewed eight deposit-taking institutions and found the situation had generally improved after they began disclosing the risks of dual pricing. It says customers have taken advantage of better advertised "grace periods".
But it also found problems remained with the way some banks were advertising term deposits.
"Some banks and mutuals conducted mail-out campaigns to existing 'selected' customers, advertising term deposits at 'special' rates or as a 'special' or 'exclusive' offer," the report says. "This may be misleading if the offered rates are generally available."