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BFCSA investigates fraud involving lenders, spruikers and financial planners worldwide.  Full Doc, Low Doc, No Doc loans, Lines of Credit and Buffer loans appear to be normal profit making financial products, however, these loans are set to implode within seven years.  For the past two decades, Ms Brailey, President of BFCSA (Inc), has been a tireless campaigner, championing the cause of older and low income people around the Globe who have fallen victim to banking and finance scams.  She has found that people of all ages are being targeted by Bankers offering faulty lending products. BFCSA warn that anyone who has signed up for one of these financial products, is in grave danger of losing their home.

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BFCSA: Desperate savers create 'diabolical' dilemma for banks

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Desperate savers create 'diabolical' dilemma for banks

Australian Financial Review May 6, 2019 7.30pm

Duncan Hughes, James Eyers

 

Ultra-low interest rates on online savings and transaction accounts have created a "floor" that will make it more challenging for banks to manage additional cuts to official interest rates, the chief financial officer of Westpac Peter King warns.

Mr King was speaking after Westpac reported a 22 per cent lower half-year profit and as analysts flagged concerns that savers will suffer if the Reserve Bank reduces the official cash rate to 1.25 per cent.

While the major banks offer term deposits where interest rates averaging 2.3 per cent could still be cut further on the back of an RBA cut, many deposits are held in accounts paying much lower interest.

For example, of Westpac's total deposits of $512 billion, $146 billion, or 29 per cent, is held in transaction accounts which pay little or no interest, and a further $152 billion is in savings accounts, where base interest rates can be below 1 per cent.

“Some of those products are at 50 basis points. If you are getting down to that level and are at zero, you are starting to get a floor under some of your deposit prices,” Mr King said.

Analysts say this 'zero bound' problem will create a “diabolical" choice for banks trying to boost margins while juggling the interests of borrowers and savers.

Rates for online saving accounts have fallen nearly eight times faster than rates for standard variable mortgage borrowers since 2008 when cash rates were put on hold, according to analysis by Canstar, which monitors fees and rates.

Rates on flexible savers, online savers, bonus accounts and term deposits have been trimmed by authorised deposit takers in response to low cash rates and lower margins from mortgage lending.

Best rates include Bank of Queensland's 3 per cent for savers who deposit $1000 a month; CUA, the nation's largest mutual, 2.9 per cent for savers who deposit a minimum of $250 and make no withdrawals; and, online U-Bank's  2.87 per cent for a monthly deposit of $200, according to RateCity.

Impact overlooked

Westpac chief executive Brian Hartzer said that the focus on standard variable borrowing rates meant the impact on savers of interest rate cuts can be overlooked.

“One of the things in this discussion that often gets lost is low rates are healthy for borrowers but they have a negative impact on savers and pensioners,” he said after reporting the bank's half-year numbers on Monday.

Sally Tindall, research director at RateCity. com.au, said the outlook for savers is "bleak".

The warnings come as the Reserve Bank of Australia prepares to meet on Tuesday amid strong pressure to cut the cash rate, which is at a record low of 1.5 per cent.

“If they get any lower, then many savers will not see the point in making deposits and seek higher risk alternatives,” warns Steve Mickenbecker, group executive for Canstar, which monitors rates and fees.

“This is a diabolical situation for savers,” adds Martin North, principal of Digital Finance Analytics, an independent consultancy.

“Those who rely on income from their savings are increasingly forced to live off their capital and are becoming more reliant on the state pension.”

Small print

For example, self-funded retirees who turned to dividend imputation investment strategies to offset the loss on interest income are warning about the loss to their income from a future Labor government’s plans to abolish the dividend strategy.

No-risk "bonus" and "special offer" savings accounts that promise another few basis points are loaded with small print conditions that exempt the higher rate.

For example, rates on term deposits ranging from one month to five years are falling by up to 17 basis points in the latest round of cuts, or more than 6 per cent off the average rate, according to Canstar.

The cuts are more than three times the headline inflation rate of 1.9 per cent.

The top rate paid on a one-year saving account with a deposit of $25,000 is about 2.85 per cent and the lowest is 1.3 per cent.

For shorter fixed terms of one month the minimum rate is 1 per cent and highest about 2.12 per cent.

Hardest hit

Some bonus savers accounts with minimum deposits of $10,000 are paying zero interest with the maximum a below-inflation 1.8 per cent.

Many bonus and promotional accounts include a range of strict conditions from making a minimum monthly deposit and no – or very few – withdrawals to having a linked transaction account with the same bank or credit union or setting up an automatic savings plan with a regular debit from a linked transaction account.

Online accounts have been the hardest hit. Since the last cash rate cut in 2016 the spread between the standard variable rate and online cash rates have continued to widen by 33 basis points. Over the same period the margin between the cash rate and standard variable rate increased 0.4 per cent.

Savers are also being targeted by offshore companies offering high signal returns from companies unregulated by the Australian Securities and Investments Commission.

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