Why neobanks offer better savings rates than the big four banks

Why neobanks offer better savings rates than the big four banks

Neobanks may be the new kids on the block, but they’ve taken the banking world by storm, ruffling the feathers of the big four and offering Aussies a one-way ticket out of savings doom.

Right now, the average savings rate for neobanks in the Mozo database is 2.23% p.a. – well above the big four bank average of 0.57% p.a..*

To put this into perspective, only 12 savings accounts in the Mozo database have ongoing rates of 2.00% p.a. or more. The highest sits at 2.25% p.a., and all three accounts with this offer belong to neobanks (Xinja’s Stash, Up’s Saver Account and 86 400’s Save Account). Just bear in mind that as of 5 March, the Xinja Stash is no longer available to new customers.

But if neobanks haven’t been in the game for that long, how are they able to offer such competitive savings rates?

Fewer overheads, higher rates

“Neobanks don’t have a branch network, huge numbers of customer service staff, or legacy computer systems to support,” Mozo’s Banking Expert, Peter Marshall said.

“They run very lean and are 100% digital. So there are all these things that the banks have had to do over years that the neobanks can just ignore and get on with making great products.”

And according to Marshall, in order to build their customer base, the neobanks have passed those savings onto customers in the form of competitive rates.

“Neobanks want to get a lot of attention so they’re pricing their products as high as possible. They’re still in the launch phase so they probably aren’t worrying too much about profit at the moment.”

Marshall added that the real test will come a few years down the track, once the neobanks have lifted themselves off the launch pad and switched their gears to making profit.

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Source: Why neobanks offer better savings rates than the big four banks

*Data as of 4 March 2020.