Neobanks in Australia including 86 400, Xinja, Volt Forced to Further Reduce Interest Rates on Savings Accounts

Neobanks have been finding it quite challenging to maintain their competitive deposit rates. During the past few weeks, three Australian neobanks have reduced their rates and two of them have placed limits on the balances on which they’ll pay higher interest.

Australia based digital bank 86 400 noted that beginning October 13, 2020, its Save account rate will be slashed from the current 1.6% to 1.35%. The Save account has a base rate of 10 basis points. Account-holders are required to maintain a balance of up to AUD 100,000 while making at least $1,000 in deposits per month, in order to take advantage of a 1.25% rate.

86 400 also told its customers that the balance on which this rate was being applied would now drop from balances of up to AUD 100,000 to AUD 50,000, which will be effective from November 2020.

Australian neobank Xinja Bank has also confirmed that it will be slashing its savings rate on its Stash account from the current 1.65% to 1.5%. This new rate will only apply to account balances of no more than $150,000. Neobank Volt also announced in September 2020 that it will reduce interest on its savings accounts from 1.65% to 1.45%.

Mozo had reported that Australia’s leading banks including the Commonwealth Bank of Australia, Westpac Banking Corporation, and National Australia Bank have all reduced interest rates paid out on customer accounts.

As reported by Banking Day, Australia’s Big Four banks (which also includes Australia and New Zealand Banking Group) have reduced their term deposit rates. AMP Bank, Australian Unity, Bank of Sydney, and Teachers Mutual Bank have also cut rates.

As reported in August 2020, Australian neobanks had been slashing interest rates on savings accounts due to economic challenges created by COVID-19.

Even though interest rates offered by challenger banks or neobanks in Australia (and globally) are generally higher than those offered by incumbents, Mozo had reported that these all-digital banking platforms have been lowering their rates.

Analysis performed by Mozo, earlier this year, revealed that three neobanks were forced to lower their interest rates just like the country’s Big Four banks.

Kirsty Lamont, director at Mozo, had stated in August of this year:

“While the neobanks had managed to offer a glimmer of hope for the nation’s savers, these out of cycle cuts are a worrying sign. As they seek to attract new customers, we’ve come to expect the neobanks will buck the downward trend of the banks but with their savings rates also heading south they appear to be rejoining the pack.” 

In July 2020, Australian digital bank UBank said it was reducing its home loan rate to historic lows for new and existing clients.

Since the COVID-19 pandemic began, Australia’s financial institutions have been slashing rates. In April 2020, Australian digital bank Up reduced its rates savings rate, following the reserve bank’s cuts.

In other countries like India, Fintech lenders are concerned about poor monetary transmission by banks and the capping of interest rates, according to a May 2020 report.

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