Shop, switch and save

Transcription

1 Shop, switch and save A no-nonsense guide to switching your home loan, bank account, savings account or credit card. Virgin Money (Australia) Pty Limited ABN AR is an Authorised Representative No of Virgin Money Financial Services Pty Ltd ABN AFSL No

2 Walk the walk It s absolutely true: If you spend a little bit of time shopping around, you can save thousands of dollars every year by choosing the best value financial products on offer. In fact, research conducted by Access Economics i shows that by switching to a better mortgage, credit card and savings account, the average Australian household could save around $4,000 every year. Sadly, many Australians don t walk the walk because they all think it s a bit too hard. In 2009, there were only 1,818 ii bank switching requests out of upwards of 25 million bank accounts in Australia. And a recent survey by ASIC showed that 40 per cent iii of respondents could not be bothered switching banks because they thought it would be too much hassle. The need for more competition in Australian banking has been much publicised, but the only way to really keep the big banks honest is to vote with your feet. As such, Virgin Money has created a How to guide on how to switch financial products. Whether it s your home loan, credit card, savings account or everyday bank account, you may be able to switch to a better deal any time you like. Switching to the best deals on offer isn t a one-off exercise. Keep your eyes peeled constantly for better deals to suit your needs. So read on, and consider switching to save. The information provided is this booklet is intended to enhance literacy around financial products and the opportunities for seeking the best deal for your needs. The advice provided is of a general nature so it does not take into account you personal situation. You should think about what is right for you before making a decision to act on this information. When considering a product, make sure you read the product disclosure statement or product terms and conditions before you purchase. I Exercising choice with financial products (Access Economics, 27 July 2010) II Too hard to switch banks (SmartCompany, 12 July 2010) III Plan to help disgruntled banks a failure (Sunday Age, 11 July 2010)

3 Why make the switch? There could be a million reasons maybe your home loan interest rate is too high or you re unhappy with the level of fees your bank charges. Or there might simply be a new product on the market that suits your needs better. Whatever your motives, your first port of call is to approach your existing provider to see if they can come to the party and give you a better deal. If they can t, then maybe it s time to start thinking about making a change. It might also be worth looking at a range of different providers for your financial services. Picking the best products out there doesn t necessarily mean sticking with a single provider. Where should you go? Maybe you want to switch to a building society, a credit union or a smaller bank rather than a traditional big bank, often referred to as the Big Four. Or maybe you are in a savings mode and just want the best rate you can get from an online account. Or perhaps you don t feel you re getting value for money and want to change your credit card provider. Before you take that step, make sure you understand what you have right now. After all, the whole exercise is to improve your situation if you don t know what you ve got now how will you know if you re going to get a better deal? First things first: Know what you want and what you need. Do your homework You don t have to approach every financial institution to make a comparison. There are a number of online information websites such as Ratecity.com.au, Infochoice.com.au, and Mozo.com.au which allow you to compare a range of financial products that suit your situation. Remember, everyone s different so you need to make sure you re looking at the products most suitable for your situation. A common pitfall is to not compare apples with apples. When it comes to mortgages, for instance, the rate you re comparing might not necessarily be cheaper as you need to take all charges into account. You also need to check factors like the exit fees, penalties or lost benefits associated with leaving your current provider these may be so prohibitive that you are better off staying where you are.

4 How to switch Your transaction account (Otherwise known as your Everyday bank account) Your home loan Your credit card Your savings account Transaction accounts Not all transaction accounts are the same. Some charge flat monthly fees, others on a pay-as-you-go basis. So if you make a large number of withdrawals a month, look for a transaction account offering free unlimited withdrawals with a flat fee. In contrast, if you only make occasional withdrawals then you may be better off with a user-pays structure. You also need to check other features such as branch access, an ATM network or the provision of an EFTPOS or debit card. Once you ve decided on the new financial institution for your transaction account, let your new provider know as they may have processes in place that will facilitate the switch. But make sure you DON T rush to close your existing account there s a bit of organising first. For those payments you have set up to be billed automatically from your account, you ll need to have them transferred across to the new institution. Sometimes it s hard to remember just what you have in terms of automatic payments. While it can be easy enough to remember monthly payments, what about the annual subscriptions you have? By law your existing institution must provide you with a list of 13 months of direct debits and credits. Such a time period should capture both your regular and the occasional payments like the gym or magazine subscriptions. Give the list to your new provider who should help you link the payments to your new account. The list should include details like the biller s name, account details and the timing and amount of payment. Don t forget that if you don t cancel a payment to your old bank account you could be charged a penalty by the biller, so it s important that all of your regular payments linked to your new bank account are accounted for. It s interesting to note that direct debits make up less than 10 per cent iv of payments according to the Australian Payments Clearing Association. Other regular payment methods include BPAY, Paypal, credit cards and of course, cash. It s useful to keep track of your BPAY payment details if it s for your healthcare, utilities, or anything else, it will be easier to restart these payments from your new account if you have everything ready to go. Where BPAY is a scheduled payment, you need to go to the internet banking site of your existing institution and cancel the scheduling. It may be you have to approach some companies individually to advise of your change of bank and account information. And don t forget about the money that s coming in to your account too don t forget to advise your employer of your new bank account details for example. QUICK CHECK Call your provider and ask for a better deal Check out comparison sites on the net for an alternative Check if your new provider has its own switching processes Open your new account Ask your existing bank for a record of all transactions over the past 13 months Advise all payers and payees of changes to your bank account and/or credit card details View your template letter here for direct debits and credits IV 2009 Annual Report (Australian Payments Clearing Association, 2009)

5 Home Loans With rates on the rise, it may make sense to shop around for a better deal to help manage those higher repayments. But make sure you do your homework properly as switching can prove an expensive exercise and you may find yourself worse off. So before you jump, talk to your existing lender to find out whether they can offer you a better deal and then, if they can t, find out what the exit fees are. Exit fees are charges that you need to pay if you decide to leave your provider. From mid-2011 exit fees are expected to be scrapped by the government, but if you already have your home loan then it s likely you ll still have to pay them. You also need to find out what the associated establishment costs are with a new loan. Establishment costs are those fees you ll need to pay for setting up your home loan with a new provider. You can spend anything from around $1000 to $10,000 in fees (exit fees, establishment fees, valuations, solicitor fees) to make a switch. So it might take time just to play catch-up before you can reap the rewards of your new home loan. What you need to check is the comparative rate which lenders by law have to provide. And don t just accept a rate that is offered at face value. Always ask if there is a cheaper rate available or if the lender can waive establishment fees or provide any professional package discounts. If you don t ask, you don t get. The worse that can happen is they say no. Always make sure the new loan is the best deal for you. For instance, you may not need a mortgage that offers a swag of bells and whistles that you don t really use, such as a redraw facility. Certainly in the early years of a mortgage, the chances that you will be paying more than your minimum are probably limited. A basic mortgage at a lower rate rather than a standard variable mortgage may be much better and let you pay off the loan much faster. Once you have found the loan that is right for you then your new lender should arrange all the processing. There is no need for you to write to your existing lender as the new lender will generally do that for you. Check what you will pay for the whole life of the loan. It s no good just looking at the headline interest rate on offer. A low rate may carry high fees; a honeymoon loan may have enticingly cheap initial rates but after the first year you might find yourself locked into a very expensive product. QUICK CHECK Call your provider and ask for a better deal Check out the exit costs and establishment costs associated with switching Check out internet sites for an alternative or talk with a mortgage broker Check the comparison rate Compare rates, features and fees

6 Credit cards Does your credit card work for you? Credit cards come in all shapes and sizes: credit cards with interest-free periods, credit cards without interest free periods, cards with and without annual fees, loyalty cards, store cards and affinity cards, each with their own personality, features, interest rate and billing cycle. If you can pay your entire balance every month then consider opting for a card with an interest-free period. The interest rate may be higher but that s irrelevant if you never have an outstanding balance. In contrast, if you generally don t pay out your balance in full, forget about cards with interest-free periods as you won t qualify for those periods anyway as you will have an ongoing debt. If you think you have the wrong card for your needs, consider switching. Or maybe your credit card bill is getting out of hand and you want to take advantage of lower rates on offer from rolling over your debt to a competitor s card. These are often at very competitive rates but check what the rate will be after the honeymoon period. Ratecity.com.au, Infochoice.com.au and Mozo.com.au can give you comparisons of the different cards and their features. If you switch credit card providers to pay off your debt, then try not to make any more purchases on your old card during the switchover period which can be up to 10 days. Your new credit card provider will only honour the amount you initially agree to roll over and not any additional amounts so you would end up with a debt still on your old card. Why not cut up your existing card immediately so you are not tempted to use it? In practical terms, you can apply for a credit card on the internet in 10 or 15 minutes or ask for the relevant forms by phone. You will be asked to provide information about your financial situation your employment details, banking details, driver s licence number, other credit cards, whether you re buying or renting your home and a credit check will be run against you. You will need to be 18 years of age and earn more than around $30,000 a year before tax. QUICK CHECK Shop around and check which type of credit card suits you best Apply for the selected card online Fill in an application form If rolling over, make sure you don t put further purchases on your new card.

7 Online savings account If you are saving for something specific, you ll want a good interest rate and maybe even a bonus rate if you don t withdraw during the course of a month. It s really easy to set up an automatic savings plan so your money is instantly transferred to your savings account at a time that you choose. Online savings accounts are a great way to save and they generally offer higher rates of interest as the lower costs from not having to run a branch network are passed on to you compared to traditional banks with branches. The downside is that you can only operate the accounts online and you have to have it linked to a regular transaction account in order to access your funds. Some online savings accounts may not give you the same amount of access as a branch, or not be able to offer you a debit card and access to an ATM network too. Online savings applications can take as little as 10 minutes. Every provider has different eligibility criteria, but generally you ll need to be over 16 to open a savings account. You then need to provide information such as your contact details, your drivers licence number, your tax file number and your linked account details. QUICK CHECK Check out comparison sites on the net for the best online savings account Apply online Provide a link to a transaction account

8 Template letters Here s the letters to send to your direct debit providers and direct credit providers. Just select the letter you need and fill in the blanks. Click here for the letter to send to your direct debit providers. Click here for the letter to send to your direct credit providers. (for your salary payments, for example)

9 Insert your name address phone number and date Changed direct debit instructions Dear This letter is to advise that I/we has/have changed financial institution. Can you please change my/our bank account details effective immediately and take future direct debits from the new account. Existing account Financial institution Account Name BSB Account Number New account details Financial institution Account Name BSB Account Number If there are any problems, please give me a call on or me at Regards, Sign with a pen here.

10 Insert your name address phone number and date Changed direct credit instructions Dear This letter is to advise that I/we (insert your name/s) has/have changed financial institution. Can you please change my/our bank account details effective immediately and make all future payments to the new account. Existing account Financial institution Account Name BSB Account Number New account details Financial institution Account Name BSB Account Number If there are any problems, please give me a call on or me at Regards, Sign with a pen here.