It concluded that having such a large sum of deposits they don’t pay interest on gave them a 50 to 60-basis point funding cost advantage over the smaller banks.
Put to McGrath, she said she was comfortable with Westpac not paying interest on all deposits, explaining those cost savings enabled it to invest elsewhere in the business.
However, she noted Westpac had an automated system that alerts customers when their transaction account, or low-interest savings account, balance surpasses $3000.
“These ‘high balance nudge’ emails direct customers to our online chooser tool, to show the different savings products available to them,” a Westpac spokesperson explained.
“We also send a follow-up email a month after their first notification email.
“In the six months to the end of February we sent 150,000 email notifications to customers, including follow-up emails.”
This prompted the Herald to ask other major banks if they do the same.
BNZ was the only other major bank that had an automated system, meanwhile a Kiwibank spokesperson explained, “Our ‘online call’ account pays interest on every dollar in the account at the same rate of interest and there’s no minimum balance or criteria to receive all the interest advertised.”
A BNZ spokesperson outlined their bank’s position: “We notify customers who maintain balances over $5000 for 45 days in transaction accounts about interest-bearing options that could better suit their needs.
“Similarly, we alert ‘rapid save’ customers when their balance exceeds $2500 for 45 days, suggesting potential higher-return options.”
Edmonds also raised the issue on Monday, when the Reserve Bank’s top brass appeared before the committee.
The regulator’s director of prudential policy Jess Rowe said requiring banks to alert customers to help them get more from their deposits was something that could be looked at.
“There has been a lot of focus on the pricing of loans,” she said.
“But these deposits that sit there are a lucrative source of funding, and are just as important, if not a more important, part of the equation.
“We have seen other countries look at ways to mobilise that, so people are actually getting the best deal on their deposits.”
Reserve Bank board chairman Neil Quigley agreed there were ways of leveraging technology to help people direct any excess funds in their transaction accounts to more appropriate accounts or investments.
Nonetheless, a spokesperson for ANZ, which doesn’t send alerts to customers about the balance of their transaction accounts, said only 12% of its deposit balances didn’t have interest paid on them as at the end of February.
The spokesperson also suggested the average person doesn’t keep unnecessarily large sums in their transaction accounts.
“The average balance of accounts that ANZ personal customers hold that don’t attract interest is around $5000,” the ANZ spokesperson said.
“Many business and personal customers choose to put their money in transaction accounts for safety and convenience, knowing they can make payments and move it around without notice.”
As for ASB, a spokesperson said, “We have a communications programme that informs customers via email, phone notification or direct mail, of the most suitable deposit product for them based on their transaction and savings account use.
“This programme has been in place for several years, with individual conversations added or removed according to prevailing interest rate conditions.
“From the beginning of July 2024 to date, we have proactively contacted more than 118,000 customers to provide them with information on higher interest earning term investments.”
All five bank spokespeople outlined various other initiatives and tools they offered customers to help them manage their money.
The head of Massey University’s accounting and finance school, Claire Matthews, believed nudging customers to consider shifting their funds to potentially more appropriate accounts could be useful.
However, she didn’t believe the extra money that might be moved on the back of this would materially dent bank profits.
Indeed, some people who respond to prompts might move their money to savings accounts, which don’t pay particularly high rates of interest.
Matthews acknowledged there was room for more innovation within the existing banking system, but said it was also a matter of customers taking advantage of what was on offer.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the Parliamentary Press Gallery. She specialises in Government and Reserve Bank policymaking, economics and banking.
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