20 September

Watchdog needs teeth on term deposits, say seniors

Australia’s corporate watchdog ASIC needs to get its teeth into regulations governing term deposits, which are disadvantaging those who can least afford a drop in income, Australia’s consumer lobby group for the over 50s says.

Banks and other financial institutions have been rolling over the investments into deposits bearing lower rates of interest, often without the knowledge of the affected depositors, says National Seniors Australia (NSA) chief executive Michael O’Neill.

In February 2010, the Australian Securities and Investments Commission published its “Review of Term Deposits”.

It contained a number of recommendations which it believed the market may have adopted voluntarily, but banks and other institutions continued to offer less than optimum terms, O’Neill said.

Elderly Australians were often conservative investors who relied on term deposits to provide them with a steady and secure income in retirement, trusting their banks to ‘do the right thing’ and offer them the best available rate for their rollovers. But this was not usually the case, O’Neill said.

He said that in one such case, a consumer’s deposit with a leading regional bank was consistently rolled over into less attractive terms only to be adjusted immediately when she raised the issue.

In another case, a 90-year-old NSW woman’s investment with a leading bank was regularly rolled over to a lesser rate, only to have the institution lift the rate again immediately after the woman’s son-in-law complained.

“This is unfair to vulnerable customers,” O’Neill said.

“Not all investors are able to ensure their rates of interest are maintained at the highest levels their financial institution can offer.”

O’Neill said he had repeatedly raised the issue with the office of Federal Treasurer Wayne Swan who advised that ASIC was looking into the matter.

But so far, there had been no action from ASIC and consumers are continuing to be ripped off with their savings.

O’Neill said ASIC had flagged possible responses to the problem, including a requirement for financial institutions to obtain formal instructions from customers about rollovers to ensure they were informed of all reinvestment options.

A second possible response was to default deposits into accounts with a higher rate of interest, such as a cash management account until informed instructions had been received.

“Those least able to afford it are suffering a drop in income because of this lack of action,” O’Neill said.

ASIC now needs to impose regulations, he said.

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With a quarter of a million members Australia-wide, National Seniors is the consumer lobby for the over 50s. It is the fourth largest organisation of its type in the world.