Photo: RNZ
Many savers are missing out because they are in "grandfathered" accounts that have had their interest rates reduced, the former chief executive of one of New Zealand's banks says.
David Cunningham, chief executive of Squirrel and former chief executive of The Co-Operative Bank, said many people would not realise that when a bank stopped selling a savings product, it might lower the interest rate to "almost nothing" but leave existing customers in it.
"It's a pretty dubious practice - and a customer-centric approach would surely see banks close all accounts in the grandfathered product and proactively move customers to a newer, better product," he said.
He estimated there could be as much as $2 billion in outdated bank online savings accounts.
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The country's biggest bank, ANZ, said it did not currently have any grandfathered products.
Westpac said it could not say how much money was in grandfathered accounts for commercial reasons.
"Grandfathered accounts make up a small proportion of our overall deposits book. For customers in a grandfathered product, we offer similar competitive pricing to comparable for-sale products. We explain this clearly to customers when we make the change and we regularly contact customers with high balances in lower interest-bearing accounts - including grandfathered accounts - to remind them of their other options," a spokesperson said.
"We know New Zealanders with savings accounts are watching falling rates closely and we're here to support them with their savings goals. For example, we've held our 32-day Notice Saver rate at 3 percent p.a. through the last two OCR cuts, and have made digital improvements so customers can easily apply for a new Notice Saver account online."
Cunningham said it was complex for banks to close products.
"It's most prevalent in the savings accounts area where - I used to be a product manager - you'd have this concept of product lifecycle management. So you'd launch a new high interest product and then over the next 10 to 15 years, you know, you'd start getting all the balances there. People that were rate -sensitive would move across to the product.
"You're constantly planning the product that you'll introduce in two or three years, and then cycling through, you know, the star product, and then the one that used to be star, and then the one that was the star, you know, five years before that, and so on."
As products moved from being the one that was promoted, their rates would drop, he said.
That could mean people were left in savings accounts and other bank products that were no longer paying the rates of interest that they were when they signed up.
"You've always got a spectrum, people that will always be looking for the best deal, and people that are quite lazy with money, or don't really care enough."
Cunningham said people could also be caught out by bonus saver accounts.
"I worked in banking when 'bonus saver' accounts first became a thing. They were a response to research that showed customers really liked the idea of being offered a reward for making progress towards their savings goal. At the time, interest rates were decent, so banks launched their bonus interest accounts with a hefty base rate and a much smaller bonus rate."
But he said banks now paid a "tiny" base rate and then a bigger bonus if people met conditions. Westpac offers 0.05 percent as a base interest rate, and a bonus interest rate of 1.45 percent if there is at least $20 more in the account at the end of the month than in the month before, excluding interest and fees.
ANZ offers a standard rate of 0.4 percent and a premium rate on top of 1.65 percent, also to customers who deposit at least $20 and make no withdrawals in a month.
But Cunningham said people could forget about the required deposits or find the rules hard to meet.
"The products are exploiting apathy - if you don't get around to putting money in, you get almost nothing."
He said his experience was that 80 percent of balances would get the full rate but only about 50 percent of customers. "People with more money tended to."
He said banks were being more proactive about telling people they needed to make a deposit but it would be better for customers not to be offered the product in the first place.
Standard bank accounts were not delivering, either, he said.
After the latest official cash rate cut, Co-Op Bank's Smile On Call account was paying 0 percent on balances up to $3999 and 0.1 percent on interest above that. ASB's Savings On Call account was paying 0.1 percent a year. Westpac's Simple Saver was offering 0.05 percent.
Massey University banking expert Claire Matthews said grandfathering could be a problem but she was not convinced it was a large one.
She said banks would often work to move people to new products because it was easier for them not to have customers in accounts that were no longer in wider use.
But she agreed that there would be people who were in the wrong type of account. She said sometimes it could be because of customer behaviour and a reluctance to shift rather than the bank short-changing customers.
But she said it was always worth encouraging people to check they were in the right products for their needs.
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