How do the neobanks now compare on savings rates?
Latest industry data reveals a growing intention by consumers to take on a savings account with a neobank and as Australia's largest lender embarked on a second round of cuts to its savings products and an expected fall in the cash rate in November, how do these banks compare with other players.
According to RFi Group research, data over the six months has revealed some interesting trends.
The data found that 2.8 per cent of consumers indicate that they hold a savings account with a neobanks - up from 1.7 per cent, six months ago.
RFi Group data also found that 9.1 per cent of those intending to take out a savings account in the next 12 months intend to do so with a neo-bank - up from 8 per cent, six months ago.
Furthermore, consumers who have a financial relationship with a neo-bank hold 25 per cent of their savings balance with neo-banks on average - up from 19.7 per cent six months ago.
It comes at a time of record interest rates – with the Reserve Bank governor Philip Lowe signalling a further cut in November.
And while we can now expect rates to be lower for longer – Lowe also said that monetary policy could ease further- a number of banks including the neobanks have had to shift accordingly, cutting their savings rate.
It also comes at a time when the major banks are also moving on cutting rates on savings accounts.
Lower for longer
Data from Canstar notes that Commonwealth Bank cut its NetBank Saver account six times this year by a total of -0.80 per cent to 0.85 per cent.
The major bank has also cut its Goal Saver account three times since January with the cuts totalling -0.40 per cent to 0.85 per cent.. The bank’s Youthsaver account has also been cut by a further -0.05 per cent to a total rate of 1.00 per cent.
Westpac and its subsidiaries have revealed cuts of -0.10 per cent to savings rates.
This followed ANZ and two of the neobanks that also cut their interest rates.
ANZ cut its savings rate -0.15 per cent.
Newcastle Permanent cut its Smart Saver Account by -0.05 per cent to 0.85 per cent. Neobanks have also moved on this front with 86 400 cutting its Save account by -0.25 per cent while Xinja has cut -0.15 per cent.
Joining other neobanks cutting savings rates was Volt, dropping its savings rate by -0.20 per cent to 1.25 per cent
Canstar researchers also highlight that Xinja is temporarily not opening any new Stash accounts, while VOLT is in beta testing, so customers have to join a waitlist
Up is the only neobank to make the list of top six savings accounts. None of the big four are on the list.
In comparison with the other neobanks, Xinja is close behind the savings rates offered by Citi and ME.
A relentless slide
Canstar group executive, financial services, Steve Mickenbecker notes that the big bank cuts are line with the relentless slide in savings interest rates as banks’ shift their funding into super low rate wholesale sources.
“Even some of the neobanks, many of which came out of the gate with strong savings rates are reducing rates,” he adds
“The neobanks that are writing loans already are seeing the same lending rate pressures as traditional banks and the need to raise funds at low costs,” Mickenbecker said.
“The neobanks that aren’t currently lending cannot sustain interest rate costs that are well above the market,” he warned.
He also noted that Xinja had announced deposits above $150,000 won’t receive any interest earnings.
“Presumably they have been too successful in attracting savers with deposits in the $150,000 to $250,000 band.
“Likewise, 86 400 has revealed it will cap bonus interest earnings at $50,000 per Save account from November.”
For Mickenbecker, the savings market is looking down the barrel at 0 per cent interest rates.
“These moves by the neobanks will be a good test of people’s reactions to zero per cent interest rates.”
Back to the RFI Group data, it will be interesting to assess whether consumers will continue to eye neobanks.
The interest could be in line with the current climate where the importance of digital banking capabilities is increasing, with people now looking to try out these new digital banks for the added features they offer.