Infochoice, an analyst group for financial comparisons, released a study comparing the costs of banking yesterday. The study claimed that Australians as a group could save $6.1 billion annually by switching to lower rate banking products—$5.3 billion on home loans, $482 million on personal and car loans (or other sorts of nonrevolving credit), and $275 million on credit card debt.

The Infochoice report claims the average Australian household could save 20% or $4,300 each year, lowering overall banking costs from $21,500 to $17,200, merely by opting for lower-cost banking products.

An Infochoice representative pointed to the recent purchase of St. George Bank by Westpac, and that of BankWest by Commonwealth, as part of the lessening of competition that has allowed the Big Four major Australian banks to hold 90% of the new mortgages being written. Their increased market share plus the lack of competition, along with brutal funding conditions amongst non-bank lenders, has led the Big Four to offer increasingly less attractive financial products, with higher rates and fees than those offerred by some smaller institutions.

The Infochoice representative put forth as an example a 30-year mortgage of $300,000. If written by one of the Big Four, the mortgage might have an average variable interest rate of 5.78%, whereas products from some smaller non-bank lenders had rates as low as 4.92%. The savings in such a case would be $3,186 each year in interest costs with a total saving of approximately $58,000 in lifetime payments.

The costs to changing an existing loan to a lower-cost non-bank lender can vary from $1,000 to as high as $3,000.

Although the Infochoice representative claimed “apathy” as the only reason people did not change to less expensive financial products, he did admit the logic of the recent “flight to quality,” when banking customers sought the shelter of strong financial institutions such as the Big Four banks during the 2008–2009 funding crisis. However, he also emphasized the ongoing strength of the Australian financial system.

Source:  The Australian