Trends in High Interest Savings Accounts in Australia

This publication has been discontinued on July 19, 2011.

Introduction

Abstract

Overview

Introduction

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.

Scope

• Includes a comprehensive overview of the Australian high interest deposit market.
• Draws upon a large Datamonitor' s consumer survey of Australian savings account holders.
• Discusses traditional savings accounts, online savings accounts, CMAs, CMTs, term deposits and offset accounts.
• Includes market overview, analysis of consumer behaviour, competitor dynamics and future developments.

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.

Reasons to Purchase

• Improve your strategic position using Datamonitor' s in-depth analysis of the Australian high interest savings account market.
• Understand the unique challenges the high interest deposit market is facing, and benefit from forecasts of future product trends.
• Gain insight into the current mindset of Australian high interest deposit customers.

Table of Contents

• Overview
  • Catalyst
  • Summary
• Executive Summary
  • Market context
    • There are many competing products in the high interestdeposit area
    • Technology changed the playing field for savings accounts
    • Global financial conditions have sparked intensifiedinterest in deposits
  • Customer focus
    • Most accountholders choose their provider based on rates
    • Accountholders who arrange savings online are younger,better educated and have a higher income
    • BankWest has the most satisfied customers of the majorproviders
  • Competitive dynamics
    • Margins are relatively low for deposit products
    • Foreign banks and regional banks have grown their share ofhousehold deposits
    • CBA is the market leader for high interest savingsdeposits
  • Future focus
    • Savings products will continue evolving
    • In time savings accounts and transaction accounts willmerge into a single product
• Table of Contents
• Table of figures
• Table of tables
• Market Context
  • Savings accounts have benefited from the increasedavailability of banking
    • Banking accessibility has increased strongly since the1980s
    • Bank branch numbers declined during the 1990s but haverecently increased slightly
    • Technology changed the playing field for savings accounts
    • Total Australian bank deposits have grown strongly
  • There are many competing products in the high interestdeposit area
  • Global financial conditions have sparked intensifiedinterest in deposits
• Customer Focus
  • A broad range of Australians have high interest savingsaccounts
    • Most Australian consumers now hold at least one highinterest savings account
    • Close to half of Australian savings accountholders have$5,000 or more in their main account
    • Half of all savings accountholders make weekly or monthlydeposits
    • More than half of savings accountholders have no specificpurpose for saving
  • Interest rate drives provider choice when choosing a highinterest savings account
    • Most accountholders choose their provider based on rates
    • Bank advisors and the internet are the most common sourcesof information
    • Fees and rates are the most important considerations whenswitching account
  • Online high interest savings accountholders havedistinctive characteristics
    • Online arranging savings accountholders are younger,better educated and have a higher income
    • Accountholders who arrange their savings online are morefinancially savvy
    • Savings accountholders with online only access are moreactive customers
  • Satisfaction with high interest savings account providersvaries
    • BankWest has the most satisfied customers of the majorproviders
    • Satisfaction metrics are especially important for highinterest savings account providers
• Competitive Dynamics
  • Providers mainly compete on the basis of rate andaccessibility of funds
    • Interest rates have many variations in the market
      • Interest rates vary wildly between deposit products
      • Some products have fixed or split interest rates
      • Introductory rates are used as a tool for customeracquisition
      • Many products offer higher interest rates if certainconditions have been fulfilled
    • Accessibility of funds differs between products
  • Competition has led to low margins in the Australianmarket
    • Margins are relatively low for deposit products
    • Online accounts have revolutionized the market fordeposits
  • New entrants have challenged the big Australian banks
    • The five largest Australian banks hold 78% of householddeposits
    • Foreign and regional banks have grown their share ofhousehold deposits
    • CBA is the market leader for high interest savingsdeposits
• Future Focus
  • Savings products will continue evolving
    • Interest rates offered are set to stay high and marginslow
    • Product terms will continue to become more relaxed
    • Online accounts will become more prevalent
    • Product bundling has important implications for productdevelopment
  • In time the savings account and the transaction accountwill merge into one product
    • There are signs that savings accounts and transactionaccounts will merge into a single product
    • The convergence of account types will have profoundeffects on the Australian deposit market
  • Government initiatives will drive new product innovation
    • The Australian government has committed to makingfinancial product switching easier
    • The recently proposed First Home Saver Account scheme willcreate a new product category
• APPENDIX
  • Supplementary data
  • Definitions
    • CAGR
    • Cash rate target
    • Foreign subsidiary banks
  • Methodology
  • Further reading
  • Ask the analyst
  • Datamonitor consulting
  • Disclaimer
• List of Tables
  • Table 1: Highest interest rate available frominstitutions varies
  • Table 2: Banking access points in Australia, 1990-2007
  • Table 3: Number of bank branches in Australia, 1990-2007
  • Table 4: Total deposits of foreign subsidiary banks,2004-2007
  • Table 5: Total bank deposits in Australia, 1990-2008
  • Table 6: Average bank CMA interest rates, 2006-2008
  • Table 7: How many high interest savings accounts do youhave?
  • Table 8: How much money do you currently have in yourmain high interest savings account?
  • Table 9: How often do you deposit money in your mainhigh interest savings account?
  • Table 10: Do you have a specific purpose/purposes foryour high interest savings account?
  • Table 11: Why did you choose this provider of highinterest savings account?
  • Table 12: What sources of information did you use whenchoosing your main high interest saving account?
  • Table 13: If you were going to change your high interestsavings account, which of the following would be important considerations?
  • Table 14: Demographics of high interest savings accountcustomers
  • Table 15: Financial attitudes of high interest savingsaccount customers
  • Table 16: Account behaviour of high interest savingsaccount customers
  • Table 17: Attitudes of high interest savings accountcustomers
  • Table 18: Satisfaction with high interest savingsaccount provider
  • Table 19: Average interest rates of the largestproviders for different products, March 2008
  • Table 20: Average margins of the largest providers fordifferent products, 2000-2008 (Table 1 of 3)
  • Table 21: Average margins of the largest providers fordifferent products, 2000-2008 (Table 2 of 3)
  • Table 22: Average margins of the largest providers fordifferent products, 2000-2008 (Table 3 of 3)
  • Table 23: Total bank household deposits, February 2008
  • Table 24: Growth rate in household deposits fordifferent institutions, 2002-2007
  • Table 25: Competitor market share of high interestsavings deposits
• List of Figures
  • Figure 1: The number of Australian ATM and EFTPOSterminals has grown strongly, 1990-2007
  • Figure 2: The number of bank branches declined duringthe 1990s, 1990-2007
  • Figure 3: Total deposits on the books of foreignsubsidiary banks have grown, 2004-07
  • Figure 4: Total bank deposits in Australia have grownstrongly, 1990-2007
  • Figure 5: Deposit products vary with regard to fundsrequired and availability
  • Figure 6: Average interest rates on bank CMAs haverisen, 2006-2007
  • Figure 7: Most Australian consumers have at least onehigh interest savings account
  • Figure 8: 56% of accountholders have less than $5,000 intheir main savings account
  • Figure 9: Half of savings accountholders make weekly ormonthly deposits
  • Figure 11: Rates drive choice of high interest savingsaccount provider
  • Figure 12: Bank advisors and the internet are commonlyused sources of information
  • Figure 13: Fees and rates are the most importantconsiderations if switching account
  • Figure 14: Online arranging mortgagors have a distinctdemographic profile
  • Figure 15: Online arranging savings accountholders aremore financially savvy
  • Figure 16: Online only savings accountholders are moreactive customers
  • Figure 17: Online only savings accountholders differ intheir attitudes
  • Figure 18: BankWest has the highest proportion of verysatisfied customers
  • Figure 19: Interest rates vary between different highinterest savings account products, March 2008
  • Figure 20: Margins have varied for different deposit products, 2000-2008
  • Figure 21: CBA has almost $100 billion in householddeposits, February 2008
  • Figure 22: Bank of Queensland has grown its householddeposit base quickly since 2002
  • Figure 23: CBA has the largest market share of highinterest savings deposits

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