4 reasons to consider using neobanks
24 Mar 2020
The offerings of so-called neobanks – a type of direct bank that operates exclusively online without a traditional branch – may have been snapped up by Generation Z and the Millennials. However, there’s no reason why your grandkids should be the only ones to benefit.
Neobanks are seeing the future of banking in the smartphone, with all banking done via apps. What makes them different is both the front end and the back end is digitised rather than offering a digitised version of existing banking infrastructure.
Jason Bryce, researcher, Infochoice, financial comparison website, says: “The neobanks have easier rules for savers than the harsh no-withdrawal, minimum monthly deposit rules of the incentive saver accounts offered by the big four banks.”
Here are four reasons why you might want to check out what neobanks have to offer.
1. Market-leading rates
As they don’t have the branches and legacy systems of the traditional banking sector, neobanks are able to offer market-leading savings rates at a time when getting a good rate is tough.
At the time of writing, several neobanks had savings rates of up to 2.25 per cent.
Jason Bryce, researcher, Infochoice, financial comparison website, says: “The neobanks have easier rules for savers than the harsh no-withdrawal, minimum monthly deposit rules of the incentive saver accounts offered by the big four banks.”
Xinja offers 2.25 per cent, without any conditions, on deposits of up to $245,000.
But at Up, for instance, you must make five or more card purchases from its Everyday transaction account each month, to earn the bonus saving rate of 2.25 per cent. Otherwise, you earn the base rate of 0.5 per cent.
At 86,400 you must deposit $1,000 into your pay or save accounts each month to earn the bonus interest. Otherwise, you earn the base rate of 0.4 per cent.
2. Government guarantee
Concerned about the safety of your money when it comes to using a new provider? Good news: the neobanks have either obtained an authorised deposit-taking institution (ADI) licence from the Australian Prudential Regulation Authority in their own right or they are operating under the licence of another ADI.
What that means is that savings deposits of up to $250,000 per person, per institution are backed by the Federal government deposit guarantee.
3. Fee-free accounts
The neobanks are making banking fee-free. No account-keeping fees or withdrawal fees at most major ATMs.
If your retirement plans include overseas jaunts this may be another reason to take a look at the neobanks.
At Up and Xinja, for example, there are no withdrawal fees from international ATMs at most major banks and no international transaction fees.
4. Easier financial management
The apps are designed to help you manage your money too. For instance, at 86,400, you’ll get a nudge if you are not on track to earn the bonus interest. It will let you know that you need another $167 to reach the $1,000 monthly deposit condition.
The Up app tells you how much you’ve spent each week and how that compares to the previous week. It also predicts how much money you’ll have to spend after paying your upcoming bills.
* Please note that this is general information only. Contact your financial planner for advice specific to your circumstances.
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