Savings accounts industry reviewed by ASIC and ABA

Tuesday March 2, 2010

The Australian Securities and Investments Commission (ASIC) has released a review of term deposit accounts, titled "Review of Term Deposits1", which is focusing on several different aspects of the term deposit market. In particular, it has reviewed eight Authorised Deposit-taking Institutions (ADIs) which cover banks, credit unions and building societies.

The Australian Bankers' Association has released its own comment on the report and has encouraged customers of term deposits that they should not simply "set-and-forget" their account but research and make an informed decision when the account reaches maturity.

Maturity is when a customer gets to decide whether to whether to rollover the term deposit at the interest rate currently offered, or whether to take out a term deposit for a different term with possibly a different interest rate. Customers also have an option to transfer the accounts funds into another type of account offered by the bank or start a new term deposit for the same term but with a different bank.

David Bell, Chief Executive of the ABA, stated in a release from the Australian Bankers' Association that term deposits are generally viewed as offering good returns on savings, particularly during difficult financial market conditions.

"In this context, it's good to receive ASIC's acknowledgement about the active role banks play in informing their customers that their term deposits are due to mature, so that customers can make a decision about their savings.

"It's also good to receive ASIC's feedback about areas where additional or more effective disclosure could make term deposits even better products for consumers."

Mr Bell stated that savings accounts customers need to have all the important information before the term deposit matures so they can make informed decisions.

"Typically interest rates vary across different term deposits mostly due to reasons with the way borrowers and lenders participate in the money markets. Therefore, when a term deposit is due to mature, the ABA recommends that customers shop around for the best product which suits their needs and make inquiries about the interest rates on offer."

"It's important for customers to check the current best available interest rates offered at maturity to see what rate and terms might be suitable, because when customers take out term deposits they're guaranteed the interest rate for the specified term and they're locking away their money for that term. If someone wants flexibility with their money and easy at-call access, a term deposit isn't suitable for them at that time."

The Australian Bankers' Association has clearly stated its position when it comes to the customer position when considering rolling over their term deposit for an additional term, with the rate of interest charged being picked as the primary concern. Other Australian Bankers' Association notes include:

• Look at other savings accounts which offer higher interest rates than the current savings account
• Online access

"There is intense competition for depositors' funds across the banks and there are some very good offers in the marketplace. Meaningful information at the time customers need to make a decision about their term deposit will help customers make informed decisions about the best place for their savings and choose the term deposit or other account which suits their circumstances" Mr Bell said.

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