DOES this plot line sound familiar? Boy and girl are desperately in love and want to do everything together all the time. Evil sorcerer threatens to harm boy if girl does not convince him she is no longer in love with him. Girl pretends to break up with boy, while yearning for his caress, yada yada.
You have got to give it to the big banks for trying. After years of criticism of their cosy club of four and under potential threat of more stringent measures to boost competition between them, NAB this week launched its “break-up” advertising campaign to show it is breaking ranks with the others.
The first salvo in what has been (misleadingly) dubbed the “bank wars”, NAB fired off a series of newspaper ads, YouTube videos, stunts outside branches, chalk drawings on footpaths, banners strung from helicopters, tweets, a special website, light projections on the side of buildings. I kid you not.
Behind this marketing circus the only change of substance is NAB will now pay new home loan customers who switch from another bank $700 towards the exit fee they may have been charged from their other bank. Westpac has retaliated by dropping its mortgage application fee and cutting the interest rate on some of its home loans by 0.8 percentage points. But all is not what it may seem.
The chief executive of mortgage comparison website RateCity.com.au, Damian Smith, is warning home borrowers not to fall prey to a clever advertising campaign and to make sure they shop around for the best deal on the entire cost of the loan, including interest rate, annual fees and application and exit fees.
On average, annual fees charged by the big banks on mortgages, at $248, are three times that of other lenders ($76), Smith calculates. And at $750, the annual fee on a NAB home loan could add up to $18,750 over 25 years.
“Application and exit fees are a small part of the overall cost of home loans and exit fees will be outlawed from July 1 for new mortgages, so it’s important to compare other features and charges such as the interest rate and ongoing fees,” he said.
While in part designed to attract new customers, this phoney war by the banks is aimed squarely at avoiding further scrutiny from Canberra. A Senate banking competition inquiry is sifting through the dirty laundry of the industry. The Treasurer, Wayne Swan, has also instructed former Reserve Bank governor Bernie Fraser to look into making bank account numbers portable, like mobile phone numbers, making it easier for customers to switch over accounts with multiple-linked direct debits.
Longer term, however, the banks’ cosy club is under threat from a more conservative attitude towards debt among households. In a speech this week, the Reserve Bank assistant governor, Phil Lowe, noted this trend really began in the early 2000s as the shift to structurally lower interest rates wore off. “It now seems reasonably clear that after a long period of structural adjustment many households are putting a little more aside each month than they were for most of the 1990s and the early 2000s.”
For Australians, the romance of higher debt appears to be fading. But make no mistake.
The big banks remain very much in love with your interest payments, and each other.
THE IRVINE INDEX 19/02/2011
Bank fees paid by households in 2009, up 3 per cent, the slowest rate of growth since the Reserve Bank began surveying in 1997. However …
Bank fees paid on home loans, including exit and establishment fees, up 17 per cent in 2009.
Percentage of Australians who think it is unfair to pay $2 to access their money through an ATM owned by another bank.
Drop in foreign ATM withdrawals in the first year after these $2 fees were made more transparent by displaying them on screen.
Saving customers made from avoiding foreign ATMs.
What bank customers still pay each year in foreign ATM fees.
Amount that Australian households spent for every dollar they earned in the second half of the 1990s.
Amount they spent for every dollar they earned in the second half of the noughties.
Percentage of people who regularly use credit cards who pay them off in full every month, up from 60 per cent in 2001.
Percentage of households with mortgages who say they are ahead of schedule on repayments, up from 50 per cent in 2008.