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Loyalty tax: How banks punish you for staying with them

Disloyal woman looking at another man and her upset boyfriend.
Image: Getty

In the real world, people treat long-time friends, colleagues and family better than strangers.

It's human nature, right? You have had a professional or personal relationship with someone, you have mutually benefited from the experience, so you're appreciative of each other.

But in finance, this is not true at all.

Industry convention is to punish customers that have stuck around by giving new customers far better deals. It's a loyalty tax, of sorts.


A quick glance around Australian banks show how new customers can grab outstanding deals, while existing ones have to put up with inferior products.

Here are four examples:

ANZ Online Saver

The usefulness of savings accounts are under the microscope at the moment after the Reserve Bank cut interest rates down to a historic-low 1 per cent.

Major bank ANZ's savings account pays a paltry 0.15 per cent to existing customers, but if you sign up as a new customer you get a bonus of 1.8 percentage points to bring it up to 1.95 per cent.

The introductory rate expires after 3 months, so any loyalty beyond that is ‘rewarded’ with 0.15 per cent of interest per year.

NAB iSaver

NAB's savings customers are even worse off, with new customers rewarded with a 2 percentage points of "fixed bonus margin" – ending up with an interest rate of 2.11 per cent.

The new customer bonus lasts for four months, when the rate reverts to what the existing clients are copping – 0.11 per cent.

Endeavour Mutual home loans

Independent financial institutions outside the four major banks also penalise loyalty.

Endeavour Mutual, which has its origins as a member-owned credit union, is currently offering new home loan customers an interest rate of 3.49 per cent. This compares to 3.99 per cent that existing customers pay.

A 0.5 percentage point difference can equate to a difference of $2,000 each year for a home loan of $400,000.

The rate for new mortgagees lasts for two years before those customers join the rest of the pack in paying more for their home loan.

For home loans, at least, you can try to negotiate a better deal before thinking about leaving that bank.

Qantas Money credit cards

The competitive credit card industry is full of examples of excellent deals for new applicants that existing customers have no access to.

For example, new customers of Qantas Money's Premier Platinum card get a chance to earn 120,000 frequent flyer points in the first six months and only pay an annual fee of $199.

Customers lose those privileges once they've had the card for more than a year.

Why do they punish loyalty?

Banks give better deals to new customers because they know most existing customers can't be bothered asking for a better deal or switching financial providers.

But such contempt for existing clientele has given the sector a bad reputation, culminating in the Banking Royal Commission that completed earlier this year.

NAB executives arguably copped the worst criticism from the commissioner. In the aftermath, chief executive Andrew Thorburn and chair Ken Henry fell on their swords.

The bank’s newly appointed chief executive Ross McEwan, who will start in September, was formerly the boss of UK bank RBS.

In 2014, he disagreed with offering nice introductory rates to new customers and promised to suspend the practice.

"It is absolutely abhorrent to give better rates to a new customer than someone who has been with you for 30 years," he told the Financial Times at the time.

"We have 16 [million] customers – it is time we need to focus on them rather than winning one or two more."

Another logic against introductory offers, he said, was that banks don't make much money out of people who keep switching providers to get the best deals.

"We do not want to build a bank by sucking people in with better rates only to dump them six months later. That is what created problems in this industry."

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