KEY POINTS:
The battle for banking customers has heated up with the Bank of New Zealand launching a new service today allowing family members to club together to get the best interest rates on savings and reduce the cost of home loans.
Called TotalMoney, the product will enable bank customers
to group together up to 10 accounts to either pool money for a higher rate of interest on savings or offset against their mortgages and reduce the interest paid on the loan.
Groups of accounts can be formed by individuals or between couples and family members.
BNZ head of marketing Shona Bishop said the TotalMoney product is a unique in New Zealand.
Bishop said a survey of bank customers last year showed 988,000 New Zealanders could benefit from pooling their deposit balances for higher interest and 643,000 could benefit from using deposit balance to offset against their home loan.
"We think it will appeal to people who want to help members of their family earn more interest and pay off home loans faster," said Bishop.
The BNZ are hoping the product will drive customers back to holding all their accounts with the bank rather than across different banks.
"We believe people are having multiple relationships because they aren't being rewarded by the one bank," Bishop said.
"We're really confident from the reaction and what we've seen there will be a significant uptake of the offering."
David Tripe director of Massey University's Centre for Banking Studies said in the short term BNZ are likely to gain a little bit of advantage through making it more attractive for customers who have some BNZ accounts to move more of their business there.
"In the longer run one would expect that other banks will wind up offering similar products, so it may not be a very long term advantage."
Tripe said it's part of the process for the BNZ of regaining personal customers - an area the bank has lagged behind other banks - and maintain, sustain, grow a little bit and get back into the personal customer space.
"One of the issues that the BNZ have is the proportion of the personal customer market they have tends to be older, so possibly what they're trying to do is get back into some of that younger section of the personal market and doing a multi-generational product would seem to be a way by which that could be promoted."
Tripe said one of the issues family groups will need to think about will be how to fairly divide up pooling and offsetting advantages amongst different family members.
"So there are some challenges in that regard."
Account balances will also be visible to all people in the group and Bishop said customers needed to be comfortable with that before considering this product.
How it works:
* For $10 per month, 10 accounts can be grouped together to either earn higher interest on deposits or reduce interest paid on a variable rate home loan.
* Groups can be formed by an individual with a number of accounts, couples (including de facto or civil unions) with several accounts, between parents and children, or non-personal entities including trust and LAQCs (loss attributing qualifying companies).
* Groups can pool the balances of money in deposit accounts to earn the maximum interest on the total amount. Currently five per cent will be paid on a total balance of up to $50,000, six per cent on $50,000 to $100,000 and seven per cent over $100,000.
* Alternatively, balances on deposits can be offset against the balance of a variable rate home loan to reduce interest costs. For example, if the balance of a variable rate home loan is $130,000 and $30,000 is held on deposit in the grouped accounts the interest of the loan will be calculated on only $100,000.
Parents with positive bank balances will be able to assist children with home loans to pay less interest, however they won't receive credit interest on balances used for offsetting.
* Offsetting can only occur on a variable rate home loan, not the balance of a fixed rate home loan.
* There is no transfer of money between group members. Likewise, group members will not be liable for home loan defaults.
* Account balances will be able to be viewed by all group members but not the transactions within the accounts.
* TotalMoney will be an internet-only offering. No paper statements will be mailed to customers but electronic pdf files will be available for download for a seven year period.
* TotalMoney accounts will have unlimited free transactions for EFTPOS, ATMs and have no charge for account set up.
