ASIC investigates marketing of online savings accounts

The Australian Securities and Investments Commission is concerned that some financial institutions may be misleading consumers in the promotion of their high -interest online savings accounts.

Consumers have been unhappy to learn that some of the high introductory rates used to promote accounts have not held up in the face of falling rates.

Others have complained that the introductory rate offers have been for such short terms that there is very little real value in them.

ASIC wrote to the Australian Bankers Association and Abacus last month to inform them it was conducting a review of advertising of online savings accounts.

Its letter says: "Our review suggests consumers are at risk of being misled by some of the current advertisements for these products."

ASIC asked the two bodies to communicate its concerns to their members. It also suggested an industry forum to discuss advertising practices.

Institutions take one of two approaches when they offer an intro rate on an online savings account. BankWest, AMP Banking and National Australia Bank have what are called variable bonus rates which move in line with changes to the base rate.

ANZ and ING Direct maintain the bonus rate at the rate advertised for the full period of the offer, irrespective of whether the base rate moves in the meantime.

ASIC has set out a number of concerns in its letter. "Some advertising may:

•    "Suggest that variable rates of interest are in fact fixed. This problem often arises where a special rate is promoted when in fact the special offer involves as margin above a standard variable rate.
•    "Promote special offer rates that are available for a period that is so short as to make the advertised benefits illusory.
•    "Promote returns that, due to the manner in which the product is structured, cannot be obtained. This can occur, for example, where a pre-condition of obtaining a headline rate of interest is to quarantine a minimum balance in a non-interest bearing account.
•    "Promote product features such as no fees or no monthly fees that are not available to the majority of the target audience. This commonly arises where the online account is only available when linked to a transaction account with the same institution. If the transaction account attracts relevant fees then it may be misleading to claim that the online account is fee free.
•    "Include inadequate or inadequately prominent references to relevant qualifications or conditions to the effect of failing to meet relevant conditions. Such conditions may include the need to maintain a minimum balance or limit withdrawals."

For some bankers it is a matter of disclosure. An AMP Banking spokeswoman said the promotional material for the bank's eASYSaver account on the AMP website states clearly that the special rate is a margin over the base rate that is subject to change. "I think we spell out that if the base rate changes the marginal rate moves in line."

But others argue that short-term teaser rates inevitably lead to problems.

RaboPlus general manager Greg McAweeney dropped the bank's promotional rate offer when he took up his post last October.

McAweeney said: "In most cases there is a problem. The promotional rate period is too short, existing customers are excluded, customers think the rate is fixed when it is not.

"Our approach is to be completely transparent. We would like to see ASIC get into this. We would like to see the banks agree to some standards."

When asked for a comment, acting Australian Bankers Association chief executive Nicholas Hossack said: "The ABA will be discussing the matter with the Australian Securities and Investments Commission."