Beating the banks and beating interest rate rises

How long have you been with your bank? When was the last time you switched all your accounts to another bank?

If you’re like most Australians the answer will either be “never” or “years ago”.

And there’s your reason why bank service will never be quite up to scratch.

This week we've seen outrage at the big banks, especially Commonwealth bank who raised their interest rates way above what the RBA rate was lifted to. And the worst part os there is no real, viable reason for doing so. So why do the banks feel they can just do what they want and rip us off?

It’s us. We’re bank suckers. We talk about how banks treat us, and the poor level of service, but that’s all we do. Talk.

We don’t walk the talk and actually do something about it. We just whinge about how we’re treated.

If we acted on those gripes then we’d see bank service improve out of site.

Why do we change supermarkets, phone companies and even partners more often than we change banks.

Choice.com.au says that Australians are too afraid of changing banks because it is seen as being too hard. But they say it's time to do so, time to make the banks accountable.

Commonwealth claims they made this increase to keep shareholders happy, to make sure they stay profitable... despite the fact that they made a healthy $6 Billion in profit this financial year.

So toughen up, and make a difference. It’s your money, you’re the customer, demand some respect from your bank.

But do your homework first and beat the banks at their own game. If you’re well informed about what you’ve got, and what you want, then your arguments will be that much more persuasive.

This time it's the home-owners who are being taken advantage of.

Only about a third of Australian households have a home loan and most of those are ahead in their repayments. In some of our major banks, 90 per cent of home loan borrowers ignored the 4.25 per cent cut in interest rates to fight the Global Financial Crisis and kept making the higher repayment.

As it stands rate rises always hit Sydney and Melbourne consumers the most. They have the biggest mortgages, with the highest property values. They’ll be faced with higher home loan rates and stagnating property.

Remember though, rates are going up because the economy is improving. Even though latest inflation figures were pretty healthy, interest rates have gone up to make sure we keep a handle on our national inflation. It's a consequence of a healthy economy. That means jobs and incomes will be more secure as the 20 consecutive years of positive economic growth continues.

That’s the good news. But any rate rise is painful and it’s always wise to start taking advantage of the cycle.

Paying off debt rather than saving is now your best investment. Think about it. Why earn 4 per cent interest in a savings account, and pay tax on it, when you can save 6 per cent by paying off more of your home loan or 16-20 per cent by paying outstanding balances on credit card debt.

The first stop should be the bank manager. If you’re a good customer with insurance and credit cards with the bank then you should be able to ask for a discount on your standard variable home loan rate of atleast 0.25 per cent. They can only say no but you may also be surprised to see how easy it is to get a deal.

Another common strategy is to merge your credit card debts and personal loans into a lower interest rate loan, such as your mortgage. The beauty of this strategy is that the lower interest rate will apply to all your debts, thereby saving you interest in the short-term.

However, if all you do is make the lower repayments, it could actually take a lot longer to pay off your debt so you end up paying more interest over the life of the loan, despite the lower annual interest rate.

One of the most popular steps to help pay off your mortgage sooner is to pay every fortnight instead of monthly… because over a year you make one additional month’s payment.

If you want to do this, make sure your lender is clearly aware of what you want to do. If you simply front up to the counter and ask to switch from monthly to fortnightly, all they’ll do is recalculate your payments so you’ll still take just as long to pay it off.

It’s also possible your lender will take into account any extra repayments you’ve made and reduce your repayments even more to fit the agreed life of the loan.

The easiest thing to do is halve your current monthly payment and tell the bank THAT’s the new figure you want to pay each fortnight.

The Internet is a great way to check how your current bank compares with others on offer. Canstar Cannex (canstar.com.au), Infochoice (infochoice.com.au) and Choice (choice.com.au) have great tables comparing every bank product by interest rate, fees and conditions.

If you’re a good customer there's every chance you might get a better deal form your bank is you just approach them and ask them for one.

If they tell you they can’t help then move to better deals elsewhere. Choice’s website has a step by step guide to changing banks including pro-forma letters and emails to send to close accounts.

We’ve run two big campaigns on Sunrise to fight the banks. On one of them we suggested home loan borrowers ring their bank manager and ask for a better interest rate. It was extraordinary how many people had 0.25 per cent shaved from their home loan rate just by asking.

It's time to stop putting up with the banks taking advantage of us. Don't be afraid to demand better deals and move elsewhere.

Comments

0 #8 2010-12-13 06:22

Dear Kochie
I am alwayys keen to get the best deal from banks.
I seek some advice to pass on to my son re his situation.
He recently completed buiding his home. His original arrangement was for a 224000 loan to build. He managed to save about 600000 by building it himself (wages allowed for by his boss)thus saving himself the final payment.
I suggested he keep the 220000 established loan but immediately pay of the 60000 once the term of the loan begins. This would give him a number of pluses - the ability to reduce repayments if something occured in the future and a quick access to funds,say for another deposit, through redraw
Option 2 which the banks are sugessting he simply start of with a smaller loan, 160000 bu continue to pay at the higher amount as he wants to pay it off quickly.
Are there any more advantages to my suggestion?
Steve

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+1 #7 2010-11-08 07:49

My husband and myself have the money to pay for 50% of a cheaper house at then moment. However, we are a bit hesitant as we don't want to get into a home and then not be able to maintain the mortgage repayments due to the rates going up like they have. We're thinking it may bge better to leave the money where it is and let the interest and savings build.
As for changing banks - is it really that easy? For us it's been hard enough just to get a bank to approve a loan for us - even with 50% of the money.

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0 #6 2010-11-07 21:21

I have just made a complaint to the Financial Ombudsman in relation to the ridiculous exit fees our bank wants to charge us.

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+1 #5 2010-11-07 12:19

Kochie, what does my daughter do, she is a single mum and there are only 3 institutions who will lend her money, so she can't just swap banks or credit unions when she wants. The cost is one reason and being a single mum who pays her bills ontime and is working is the other.

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+1 #4 2010-11-07 09:29

For the two-thirds of us who don't have a home load ... just finding a bank in the local area is increasingly difficult. Then see if they have the kind of account which suits you. Watch out for needing to maintain thousands each month in the account ... a lot of us don't have enough spare cash to make an almost-interest-free loan to a bank! When there was a bank branch on every street corner, switching banks was more simple.

I don't fancy you as PM Kochie

I prefer the one we've got who must legislate to eliminate bank fees and make these businesses respond to their customers. Unfortunately the customers can't do without the banks, almost everything is done via a bank account these days :sad:. No other business can treat their customers like the banks do and still stay in business.

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+1 #3 2010-11-05 20:46

For heavens sake. All this talk about changing banks is just baloney. It is completely unrealistic to think people can get a substantially better deal from a different one. The banks are running an unofficial cartel. They are all the same. They have been allowed to become so powerful they can do what they like. And they do!
There is only one way they will be stopped from ripping off their customers and that is by legislation.
Brian Taylor

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0 #2 2010-11-05 19:07

we changed to CBA about 2 years ago since then they have incresed increased increased their interest rates...please do something to put a stop to this as our government think this is ok,but they probably own their own homes so why should they worry....get a fight going koshie & help all us battlers

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+6 #1 2010-11-04 17:48

Kochie koshie koshie
you are our only hope!!!
you are in the perfect position to save all us aussies!!!!!!
do it !!!
run for PM!!!!
your honest
you are a go getter
you do what you say
you challenge the big guns
thats, what us true aussies need to represent us,the people,us tax payers
get this country back on its feet
help help help

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