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How to get more out of your bank

Teigue Payne

The main obstacle to moving accounts is the inconvenience, writes Teigue Payne.

There is a wide difference in interest rates offered on current or transactional accounts by the banks, with Capitec at the high end (offering 6% and 4.5%) and the older, traditional “big four” generally giving no interest, although in some cases it might be 2% or slightly more.

But anyone who is prepared to open different accounts and separate the functions of current/transactional banking and investment/savings banking will find that the difference can be narrowed considerably, although Capitec (which doesn’t require you to separate these functions for a credit balance of up to R50 000) is still likely to be slightly ahead of the big four on interest paid.

Gavin Opperman, chief executive of Absa Retail Bank, said: “At Absa, we make a clear distinction between transactional accounts and investment accounts. On our investment accounts we offer customers a wide range of options for investing their hard-earned cash.

“For example, on Investment Advantage, customers earn 5% on credit balances and have immediate access to funds they have deposited. Customers who are willing to invest their money with us for more than five years can earn up to 7.3% on our 60-month fixed deposit.

“Generally we don’t pay credit interest on our pure transactional accounts because we have more appropriate investment vehicles to satisfy customer needs. The one exception is that we do pay 2% interest on our current account packages for customers who choose to sign up to these.

“While our interest rates are tiered on many products, no ceilings apply to the interest rates we offer our customers,” Opperman said.

Stephen Higgins of FNB said: “FNB transactional accounts generally do not pay interest as these accounts are not designed for the accumulation of savings. FNB cheque accounts do, however, offer a Savings Pocket that is available free of charge and is linked directly to the cheque account. The Savings Pocket offers rates from 0.25% to 2.3% for balances up to R100 000. This facility enables customers to differentiate savings funds from money that will be spent for daily expenses.”

Global One account
Capitec’s remarkable market share gains in recent years seem to have been achieved partly by conflating (at least for the bulk of the population) the distinction between transactional and investment/savings accounts, which the traditional banks say the customer should make.

This conflation is at the essence of Capitec’s Global One account, described as “a savings transaction account”.

Charl Nel of Capitec said of the Global One account: “Your first account is the transaction account, and on that you get the high interest rate of 6% up to R10 000; on any amount above that, you get 4.5%. The account also has relatively low fees so, overall, your bank account should cost you very little.”

Of course, bank charges are the other side of the coin, but a number of surveys have shown that Capitec is at least close to the lowest as well.

Global One allows the client to open a maximum of four additional savings plans (called anything you like, such as “holiday”, “emergency” or even “mother-in-law”). Those earn the same interest (6% on R10 000 and 4.5% on any amount above that) if you choose to keep them as normal savings accounts. Another option is to have them as fixed-term accounts, in which interest rates can be better than 6%—rising to 8.8% at the highest (for 49 to 60 months on more than R100 000).

On these accounts there are also two options: put in an amount and forget about it, or add to the pot regularly.

Even Capitec cannot make its product absolutely simple but, in essence, Global One is a single product with savings options.

There are also credit options—that is, different term loans—which are very important in the mainstream market.

Capitec has aimed these at the bulk of South Africa’s “bell curve”—people who are not expected to have savings of more than R50 000. Global One clearly benefits them, and bigger clients can benefit from fixed-term contracts.

It’s a fair bet that the other banks could not follow Capitec in conflating transactional and investment accounts because they make a lot of money by not paying interest on transactional accounts.

Riaan Stassen, chief executive of Capitec, has said: “It is a core principle ... that by using technology innovatively we can drive banking costs down and offer the most affordable banking for clients.”

Capitec has also aimed for simplicity. But customers who are prepared to research and understand other banks’ offerings can, besides earning interest rates that are nearly as high, benefit from the loyalty programmes that Capitec does not have. Capitec also saves by not sponsoring sports.

Loyalty schemes
Loyalty programmes can be very beneficial. Absa’s loyalty programme offers Bank Earn rewards—customers can earn up to 1% cash back on their credit and debit card purchases; it also offers customers legal, health and medical assistance.

Opperman said: “This service provides the best of both worlds for customers as we provide assistance from an emergency perspective as well as savings on purchases of items.”

FNB’s loyalty schemes include its long-standing, popular eBucks rewards programme. Late last year it also introduced Fuel Rewards, through which customers can earn up to 15% of the value of their fuel purchases. And in some cases it offers free ADSL data bundles for cheque account holders.

But Nel said that, for most people, the cost of banking, or the interest earned, was their priority.

Some websites, such as www.thinkmoney.co.za and www.bankmonitor.co.za, offer comparative tables. But the number of different packages, offerings and the snares involved (for instance, high fees for anything over the number of transactions allowed on a particular package) don’t increase trust or belief in the more complicated packages.

Nel said the complexity of other banks’ offerings was a product of long legacies—the development of different products by different departments, divisions and business units—in which the common thread got lost, resulting in a fog for most customers. He said this also resulted in higher overhead structures lingering on, for instance, relatively big back-office staffs, which Capitec did not need because of digital efficiencies.

FNB, at least, seems to have recognised that Capitec’s “mainstream” offering must be answered. Its EasyPlan project has been growing strongly in the two years of its existence, particularly because of its microlending activities.

EasyPlan, which keeps the sharp distinction between transactional and investment accounts, is available only to people earning less than R100 000 a year.

More than 100 FNB branches now include EasyPlan and the target is 150 by the end of the year.

But Capitec, with its 460 branches, still appears to be well ahead in terms of convenience because its clients are not restricted to ATMs and branches, but can draw money (at a cost of R1 a time) at retail check-out points at Shoprite-Checkers, Pick n Pay and some Spars.

Absa has a huge “financial inclusion” project, mainly Absa Entry Level and Inclusive Banking (Elib) but also a number of other initiatives. In a more recent innovation, Absa is rolling out in-store banking to 1 000 small and medium-sized merchants, enabling them to offer basic banking services.

But although the big banks might be chasing downhill to recapture some of the market they have lost to Capitec, Capitec itself was inadvertently going upmarket, Nel said, because high net-worth individuals were being attracted by the same benefits that attracted its mainstream customers.

Having more upmarket clients is perhaps one of the reasons why Capitec will be bringing out a credit card soon, although apparently it will be somewhat different to those of traditional banks.

The interest rates offered may vary considerably and the packages may be confusing, but all the banks seem to be uniform and consistent about one thing: they recognise that the main obstacle for a customer in moving accounts between institutions is the effort involved in changing their salary and debit order details.

So, all the banks that responded to information for this article (Absa, Capitec and FNB) do the switch for free, although these transfers may take a few months.

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