Banks make most of their retail profit from transaction deposit accounts. New research released last week discovered that, alarmingly, it's not the rich customers who are adding to the banks' bottom lines; it's the people who can least afford it.
In a report from UBS Investment Research, analyst Jonathan Mott says the kinds of customers banks are most likely to profit from these days are "likely to be less financially literate and are more likely to come from the lower-income [groups]".
In comparison, wealthier customers are much less profitable for the banks as they often have heavily discounted mortgages and are savvy when it comes to managing their financial affairs.
Change bad habits
The first thing anyone needs to do if they are tired of adding to the banks' bottom lines as their own is gradually eroded is get out of poorly performing transaction accounts. Most of these pay less than 1 per cent interest and charge monthly fees that eat into your money as well.
Comparison website Mozo has compiled two tables for us. The first shows the best ongoing rates overall, but the second shows the best base rates; that is, these are accounts where you don't need to make monthly deposits and would be particularly suitable for people no longer working, such as retirees.
"The UBank and the RAMS accounts are still really competitive, even if you don't meet the criteria for the conditional rate," the product data manager at Mozo, Peter Marshall, says.
He also points out that while rates on deposit accounts have come down, those on online savings account are still relatively high.
"If you want to have money at call these are really competitive rates," he says. "I think they will [stay high] because the banks are still watching their funding mix really closely, and that's still supporting the savings rates more than I would have expected."
The fine print
Conditions on online savings accounts vary but most in our first table include a regular savings plan or some kind of regular deposit. The base rate in many instances is zero or less than 1 per cent, so don't miss a deposit. Many will also penalise you for making a withdrawal.
"You really have to dig into the details to be aware of the conditions," Marshall says.
RAMS is a relatively new entrant into this space but its base and conditional rates are both relatively attractive.
"Even the base rate on the USaver and the RAMS are really as good as you'll get at the moment at a six-month or even a 12-month term deposit," Marshall says.
Although they won't go on the record about it, some institutions will also continue their introductory rate beyond the introductory period if you ask them nicely. You just need to remember to call them every four months, or after however long the introductory period lasts, to ask them. ING Direct, for example, may be the most famous of the OSAs and was certainly the groundbreaker in this space, but it doesn't make either of our lists.
However, its introductory rate of 5.6 per cent on its Savings Maximiser has been extended past the introductory four-month period for customers who call and ask for an extension.
"I think there is a lot of confusion in the market because there are the introductory rates as well as the conditional rates," Marshall says.
"I'm not surprised that people find it a bit confusing to know whether to trust the headline rate that's put in front of them."