Cash-back sweeteners curry favour only for short time, says CEO

by Calida Smylie05 Jun 2014
A bank chief executive has taken a dig at other lenders offering money back for new and returning customers as a ‘sweetener’.  

With overall credit growth remaining low the pressure is on many banks to meet their own credit growth expectations and some have been offering cash-back sweeteners to win favour with customers, ME Bank CEO Jamie McPhee said.

“Cash-back sweeteners can be nice in the short-term, but customers should understand they can save much more on their home loan in the long-term by locking in a lower rate.”

Lenders which have recently announced $1000 cash-back deals for new or returning customers include CBA, St. George, Bank of Melbourne, and BankSA. CUA is offering $500 back.

While ME Bank will not offer this 'sweetener', McPhee announced the lender has cut its one and five year fixed standard home loan interest rates.

He said the cost of fixed rate funding has been falling as global economic weaknesses persist, local economic growth remains below average, the transition to non-mining activity continues, and expectations grow for some fiscal contraction from the budget.

“Fixed rate funding costs are falling as the market pushes out expectations for future RBA rate movements. ME Bank has taken advantage of these falls and is passing on the savings to customers.”

Its one-year fixed Standard Home Loan rate was cut by 0.05% to 4.89% p.a. (comparison rate 5.35% p.a.) and its five-year fixed Standard Home Loan rate was cut by 0.40% to 5.39% p.a. (comparison rate 5.40% p.a.).

The bank, which is fully owned by industry super funds, said it offers the lowest three-year and five-year fixed home loan rates in the market.

MORE:

More banks offering $1,000 cash back

New refund broker claims cash back not a marketing gimmick

Mortgage software companies snapped up in 'rare opportunity'

COMMENTS

  • by Broker 5/06/2014 11:14:42 AM

    Spot on , as brokers and customers aren't stupid , but banks sure like to treat them that way!

  • by DanG 5/06/2014 11:31:14 AM

    Nice ad attempt for ME Bank but I fail to see any sense in this

    "Favour" is intangible.

    “customers should understand they can save much more on their home loan in the long-term by locking in a lower rate.”

    Implies those not offering kickers have better rates? Maybe they're just paying less by doing the deal direct. Even so, a $1k kicker would be made back by the funder "short term" and certainly has no bearing on longer term rates.

    It could be a market share grab and they have at cost rates to go with the kicker. The same funder may have the worst rates in a year to recoup costs. Noone can say for sure about from the individual lender and Mcphee's vague blanket statement of phantom savings in the future is wiffy

    Exit costs + Entry costs = Cost of refinance.
    (Loan Balance x Rate difference) + Cashbacks = Benefit of refinance PA.

    Don't forget LMI. Paying again?

    Numbers mean something. ME banks spiel about a .05% cut and savings of a time in the future do not.