Trends in High Interest Savings Accounts in Australia

The high interest deposit market is undergoing rapid change, driven by competition and technology. Online savings products have allowed a range of new players to enter the market, and have forced interest rates upward. The currently turbulent financial markets have sparked renewed interest in deposits, and so the high interest deposit market is set to continue being very competitive.

Report Highlights
Online banking made managing banking business even easier for consumers, as well as enabling new competitors to enter the market. Foreign banks, previously hampered by their lack of branch coverage, could now compete with the major Australian financial institutions.

At the same time that lenders have refocused their efforts to attract deposit customers and become more risk-averse, consumers have become more cautious as a response to the uncertain financial outlook. A shaky stock market has helped shift consumer focus toward deposits. It is thus clear that both supply and demand for deposit products is rising.

The new Australian government has pledged to restrict switching fees for financial products, in a bid to make switching easier for consumers, to encourage competition in the market. Another potential legislative change could be a mandate that banks simplify the process of carrying over direct debits when consumers wish to switch accounts.
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Overview 1
Catalyst 1
Summary 1
Executive Summary 2
Market context 2
There are many competing products in the high interest deposit area 2
Technology changed the playing field for savings accounts 2
Global financial conditions have sparked intensified interest in deposits 2
Customer focus 2
Most accountholders choose their provider based on rates 2
Accountholders who arrange savings online are younger, better educated and have a higher income 2
BankWest has the most satisfied customers of the major providers 3
Competitive dynamics 3
Margins are relatively low for deposit products 3
Foreign banks and regional banks have grown their share of household deposits 3
CBA is the market leader for high interest savings deposits 3
Future focus 3
Savings products will continue evolving 3
In time savings accounts and transaction accounts will merge into a single product 4
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Table of figures 7
Table of tables 7
Market Context 8
Savings accounts have benefited from the increased availability of banking 8
Banking accessibility has increased strongly since the 1980s 8
Bank branch numbers declined during the 1990s but have recently increased slightly 9
Technology changed the playing field for savings accounts 10
Total Australian bank deposits have grown strongly 11
There are many competing products in the high interest deposit area 12
Global financial conditions have sparked intensified interest in deposits 14
Customer Focus 16
A broad range of Australians have high interest savings accounts 16
Most Australian consumers now hold at least one high interest savings account 16
Close to half of Australian savings accountholders have $5,000 or more in their main account 17
Half of all savings accountholders make weekly or monthly deposits 17
More than half of savings accountholders have no specific purpose for saving 18
Interest rate drives provider choice when choosing a high interest savings account 19
Most accountholders choose their provider based on rates 19
Bank advisors and the internet are the most common sources of information 20
Fees and rates are the most important considerations when switching account 21
Online high interest savings accountholders have distinctive characteristics 22
Online arranging savings accountholders are younger, better educated and have a higher income 22
Accountholders who arrange their savings online are more financially savvy 23
Savings accountholders with online only access are more active customers 24
Satisfaction with high interest savings account providers varies 26
BankWest has the most satisfied customers of the major providers 26
Satisfaction metrics are especially important for high interest savings account providers 27
Competitive Dynamics 29
Providers mainly compete on the basis of rate and accessibility of funds 29
Interest rates have many variations in the market 29
Interest rates vary wildly between deposit products 29
Some products have fixed or split interest rates 30
Introductory rates are used as a tool for customer acquisition 30
Many products offer higher interest rates if certain conditions have been fulfilled 31
Accessibility of funds differs between products 31
Competition has led to low margins in the Australian market 31
Margins are relatively low for deposit products 31
Online accounts have revolutionized the market for deposits 32
New entrants have challenged the big Australian banks 33
The five largest Australian banks hold 78% of household deposits 33
Foreign and regional banks have grown their share of household deposits 34
CBA is the market leader for high interest savings deposits 36
Future Focus 37
Savings products will continue evolving 37
Interest rates offered are set to stay high and margins low 37
Product terms will continue to become more relaxed 37
Online accounts will become more prevalent 37
Product bundling has important implications for product development 38
In time the savings account and the transaction account will merge into one product 38
There are signs that savings accounts and transaction accounts will merge into a single product 38
The convergence of account types will have profound effects on the Australian deposit market 38
Government initiatives will drive new product innovation 39
The Australian government has committed to making financial product switching easier 39
The recently proposed First Home Saver Account scheme will create a new product category 39
APPENDIX 40
Supplementary data 40
Definitions 53
CAGR 53
Cash rate target 53
Foreign subsidiary banks 53
Methodology 53
Further reading 54
Ask the analyst 54
Datamonitor consulting 54
Disclaimer 54
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Table 1: Highest interest rate available from institutions varies 33
Table 2: Banking access points in Australia, 1990-2007 40
Table 3: Number of bank branches in Australia, 1990-2007 41
Table 4: Total deposits of foreign subsidiary banks, 2004-2007 42
Table 5: Total bank deposits in Australia, 1990-2008 43
Table 6: Average bank CMA interest rates, 2006-2008 44
Table 7: How many high interest savings accounts do you have? 44
Table 8: How much money do you currently have in your main high interest savings account? 45
Table 9: How often do you deposit money in your main high interest savings account? 45
Table 10: Do you have a specific purpose/purposes for your high interest savings account? 45
Table 11: Why did you choose this provider of high interest savings account? 46
Table 12: What sources of information did you use when choosing your main high interest saving account? 46
Table 13: If you were going to change your high interest savings account, which of the following would be important considerations? 46
Table 14: Demographics of high interest savings account customers 47
Table 15: Financial attitudes of high interest savings account customers 47
Table 16: Account behaviour of high interest savings account customers 47
Table 17: Attitudes of high interest savings account customers 48
Table 18: Satisfaction with high interest savings account provider 48
Table 19: Average interest rates of the largest providers for different products, March 2008 48
Table 20: Average margins of the largest providers for different products, 2000-2008 (Table 1 of 3) 49
Table 21: Average margins of the largest providers for different products, 2000-2008 (Table 2 of 3) 50
Table 22: Average margins of the largest providers for different products, 2000-2008 (Table 3 of 3) 51
Table 23: Total bank household deposits, February 2008 52
Table 24: Growth rate in household deposits for different institutions, 2002-2007 52
Table 25: Competitor market share of high interest savings deposits 53
Figure 1: The number of Australian ATM and EFTPOS terminals has grown strongly, 1990-2007 9
Figure 2: The number of bank branches declined during the 1990s, 1990-2007 10
Figure 3: Total deposits on the books of foreign subsidiary banks have grown, 2004-07 11
Figure 4: Total bank deposits in Australia have grown strongly, 1990-2007 12
Figure 5: Deposit products vary with regard to funds required and availability 14
Figure 6: Average interest rates on bank CMAs have risen, 2006-2007 15
Figure 7: Most Australian consumers have at least one high interest savings account 16
Figure 8: 56% of accountholders have less than $5,000 in their main savings account 17
Figure 9: Half of savings accountholders make weekly or monthly deposits 18
Figure 10: Around a quarter of all savings accountholders save for an eventual emergency 19
Figure 11: Rates drive choice of high interest savings account provider 20
Figure 12: Bank advisors and the internet are commonly used sources of information 21
Figure 13: Fees and rates are the most important considerations if switching account 22
Figure 14: Online arranging mortgagors have a distinct demographic profile 23
Figure 15: Online arranging savings accountholders are more financially savvy 24
Figure 16: Online only savings accountholders are more active customers 25
Figure 17: Online only savings accountholders differ in their attitudes 26
Figure 18: BankWest has the highest proportion of very satisfied customers 27
Figure 19: Interest rates vary between different high interest savings account products, March 2008 30
Figure 20: Margins have varied for different deposit products, 2000-2008 32
Figure 21: CBA has almost $100 billion in household deposits, February 2008 34
Figure 22: Bank of Queensland has grown its household deposit base quickly since 2002 35
Figure 23: CBA has the largest market share of high interest savings deposits 36
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