Australia’s strong consumer protection laws and other protections like the $250,000 deposit guarantee provide a rightful comfort to consumers.
However, with this comes a tendency to not actively search for a better deal or understand the bargaining power at your fingertips.
The deal we have with the big four
Banks, or deposit-taking institutions, loan out money that is left under their control from Australian consumers. They do this, in short, to make money. What they don’t do to make money is leave cash sitting in an account.
This basic fact alone should indicate to consumers that their money can work significantly harder for them if moved around the market or invested into vehicles that aren’t idle accounts.
“The banks have done a phenomenal job in creating this perception that you’re leaving your money somewhere, or depositing your money. What you’re really doing is lending money… for which they pay you very little,” said Mayfair 101’s James Mawhinney.
“We have all seen how much profit the big four have made in the last few years, which has meant the savers are... being hard done by on the rates,” said Mr Mawhinney.
An increase in savings rate – have consumers got it wrong?
In the March quarter, the savings rate for Australian consumers rose as investors began to park more money aside for a rainy day.
Mr Mawhinney believes consumers that are better educated about where their money is going would have done more with their money than leave it in a bank.
He encourages Australians to think outside of their known comforts and consider alternatives on the market. These should be aligned with risk appetite and strategy.
“I don’t think they have it wrong; they have made the best decision at the time with the knowledge that they have,” said Mr Mawhinney.
“The people that have done very well historically in life are the people that have educated themselves best. For those people that educate themselves on alternative investments will find there’s an enormous amount,” continued Mr Mawhinney.