Bank on it: big is not always better

The big banks may be able to offer some sort of security in a global financial crisis but it is the credit unions and building societies and some low-frills home-loan providers that are offering their customers the better deals. When bestowing their annual Blue Ribbon Awards across the following nine lending and credit card categories, our sister publication, AFR Smart Investor, and judges Infochoice discovered these member-based institutions are going all out to provide innovative products and features.

LOAN VOICE

Victoria-based credit union Mecu was deemed the best provider in the variable-rate home-loan category, taking out the accolade against finalists One Direct and State Custodians Mortgage Company.

Its Premium Home Loan offered an average interest rate of 6.88 per cent over the judging period but it was its lower deferred establishment fees/early termination fees that put it in first place.

The 140,000-member strong Mecu takes sustainability extremely seriously, offering a half-a-percentage-point rate discount if a home has a six-star environmental rating.

The fixed-rate home-loan category was also won by a non-bank provider, the Newcastle Permanent Building Society. Its options of extended fixed home-loan terms of seven and 10 years gave it the advantage over its competitors. The chief executive officer, Terry Millett, says it's important to offer a full range of periods. At different times people want a mixture, he says.

Credit unions and building societies such as Newcastle Permanent say the long-term approach they can take is their competitive advantage, as they don't have the pressure of reporting to shareholders every six months.

The Newcastle Permanent Building Society fixed rate home loan offered an average interest rate of 6.97 per cent over the period and Infochoice says its flexible repayment options and the ability to make extra repayments of up to $25,000 a year" provide added value.

Also highly commended in this category were NAB and Arab Bank.

Owned by ANZ, the winner and provider of the best line-of-credit product  One Direct  is not, strictly speaking, a non-bank but it is an organisation that has given its customers a competitive advantage via pure online delivery.

The One Direct Equity Loan was deemed the best product due to a competitive average interest rate of 6.97 per cent over the 12-month period. It managed to cut rates by 3.56 percentage points. Highly commended in this line-of-credit loan category were Heritage Building Society's Living Equity product and MyRate's All-In-One Line of Credit.

One Direct was established in 2006 to provide a low-cost online alternative and has been delivering on that promise ever since. All applications need to go through online or telephone channels.

PLASTICITY

Through a period of falling interest rates, the best providers in the lower-rate credit card categories were those that managed to follow most of the Reserve Bank's movements down. It's important to remember that not all providers are as quick to lower rates on credit cards as they are to raise them.

In the low-rate card category, Mecu's Low Rate Visa was the clear winner with the lowest average rate of 9.39 per cent. Both its purchase rate and cash rate went down over the past year by almost 1 percentage point.

Mecu makes its credit cards out of sustainable plastic, or polytetrafluoroethylene. It also has a 100 per cent no marketing guarantee, which means you'll never be contacted and asked if you want to increase your credit limit.

The Members Equity Bank MasterCard and the St George Bank Vertigo MasterCard were the two other finalists in this category with rates of 11.32 per cent and 10.99 per cent, respectively.

But if you want a fully featured credit card, you can't go past the American Express Platinum credit card, which took out this category for the third year running. Its suite of features includes: a concierge service, a free internal Qantas flight or hotel stay with one of 40 approved domestic hotels a year and international and domestic insurance.

The vice-president of brand, loyalty and rewards at American Express Australia, Corrina Davison, says the company's global infrastructure makes it reasonably easy to offer customers a better offering. It's always one of our most popular cards, she says. And, despite the global financial crisis, there has been no notable drop-off in card numbers over the past 12 months.

The card's annual fee of $395 covers all the additional services including the 24/seven concierge service for organising travel and day-to-day itineraries.

Other finalists in this category were Westpac Bank's Altitude Platinum card and Macquarie Bank's Platinum card.

Balance-transfer cards are few and far between at the moment, with more cards withdrawing from the market.

However, MasterCards offered by Community CPS Australia MasterCard (Silver) and CUA Silver Rewards MasterCard still manage to provide a good low-rate card with balance transfer offers of 4.9 per cent for the life of the balance transfer. In deciding the winner of this category, Infochoice calculated how long it would take to pay off $3000 in debt transferred with a $150 payment a month. On both cards it would take one year and 10 months at a total cost of $226.

The two highly commended cards in this category were IMB's Rewards MasterCard and St George Bank's Vertigo MasterCard.

PACKAGES AND PERSONAL LOANS

The only category where the big banks managed to win outright this year was for the premium banking package, as they are able to offer a wider suite of products. This year's winner, Commonwealth Bank Wealth Package/Mortgage Advantage, is not only able to offer customers the entire range of banking products but also insurance and online trading discounts.

The executive manager of acquisition and mortgage wealth at Commonwealth Bank, Nick Fernando, says: When they come to an institution like us, you have access to all of our products. You have the advantage of the scale of all of our products.

Sixty per cent to 65 per cent of home loans at the bank now come through these wealth packages. There is also the convenience of single pin and log-on to access services in one place. ANZ's Breakfree Package and NAB's Choice Package were highly commended.

But in the two personal-loan categories  unsecured and secured  it was back to the regionals. Wagga Mutual Credit Union was again the best provider of an unsecured personal loan. Its loan offered an average interest rate of 11.23 per cent, application fee of $125 and loan amounts of between $5000 and $100,000 over a maximum loan term of five years. The Gold Personal Loan is very popular with Wagga Mutual's members, which is why the credit union has decided to make it a flagship product. Other finalists in the unsecured personal loan category were Heritage Building Society with its Standard Personal Loan (unsecured) and Mecu with its Personal Loan (unsecured).

Newcastle Permanent was the best provider in the secured personal loan category with its fixed-rate personal loan.

The average rate on its Fixed Rate Personal Loan was, at 9.47 per cent, more than 3 percentage points cheaper than the first big-four bank Infochoice ranked. Average rates on the two highly commended in this category  IMB and Arab Bank  were 10.02 per cent and 11.19 per cent, respectively. The judges also commended Newcastle Permanent's flexibility and lack of penalties for early repayment.

For full details of Blue Ribbon Award winners, including the top insurance and investment products, please see the September issue of the AFR Smart Investor magazine.

How they all fared

VARIABLE-RATE LOAN

Finalists Mecu, One Direct, State Custodians Mortgage Company

Winner Mecu Premium Home Loan

FIXED-RATE HOME LOAN

Finalists NAB, Arab Bank, Newcastle Permanent Building Society

Winner Newcastle Permanent Building Society

LINE OF CREDIT

Finalists Heritage Building Society, One Direct, MyRate.com.au

Winner One Direct Equity Loan

PREMIUM BANKING PACKAGES

Finalists Commonwealth Bank, ANZ, NAB

Winner Commonwealth Bank Wealth

Package/Mortgage Advantage

PERSONAL LOAN SECURED

Finalists IMB, Arab Bank, Newcastle Permanent Building Society

Winner Newcastle Permanent Building Society

PERSONAL LOAN UNSECURED

Finalists Heritage Building Society, Wagga Mutual Credit Union, Mecu

Winner Wagga Mutual Credit Union Gold Personal Loan

FULLY FEATURED CREDIT CARD

Finalists Westpac Banking Corporation, Macquarie Bank, American Express

Winner American Express Platinum

LOW-RATE CREDIT CARD

Finalists ME Bank, Mecu, St George Bank

Winner Mecu Low Rate Visa

BALANCE TRANSFER CREDIT CARD

Finalists Community CPS Australia/CUA, IMB, St George Bank

Winner Community CPS Australia/CUA MasterCard

All rates quoted were for 12-month judging period ending June 1, 2009. For the latest rates on all products see infochoice.com.au.

LITTLE JOY FOR BIG FOUR IN DEPOSITS CATEGORY

DEPOSITS

The big four banks were markedly absent from the winner's podium in the deposit categories, although CBA, via its acquisition, Bankwest, features in a number of categories.

PERSONALITY PLUS

Industry funds would have been super pleased this year as their bank ME Bank (formerly known as Members Equity) won the overall savings category with its ME Online Savings Account. The head of corporate and social responsibility, Tony Beck, says they try to avoid gimmicks and special offer rates and instead consistently give members one of the highest average interest rates in the market.

The ME Online Savings Account was offering an average interest rate of 5.9 per cent over the 12-month period to July 1, 2009, which was second only to one other institution, which ME Bank beat with its better (lower) fees. One Direct and Arab Bank were highly commended.

Bankwest won the incentive saver account category with its Bankwest Smart eSaver account. While its bonus rate of 4.5 per cent may not be as high as some, it still offers a standard rate of 3 per cent if a withdrawal is made. Many other products in this category offer harsher penalties for withdrawals, such as dropping the standard rate to below 1 per cent. The other finalists were Newcastle Permanent Building Society and the Greater Building Society.

Bankwest also won the personal transaction account category with its Hero and Zero offerings. The Hero account offers 2.5 per cent on deposits up to $5000 and easy access. The Zero account offers unlimited free electronic transactions with non-affiliated ATMs, which judges Infochoice say is its most remarkable feature. You simply deposit a minimum of $2000 a month to qualify, the judges said.

Other finalists in this category were St George Bank and NAB.

MATES' RATES

The high rates that some term deposits and cash management accounts were offering last year may be a thing of the past but the Blue Ribbon Award winners in these categories still managed to offer a decent rate, considering the Reserve Bank has chopped a full 4.25 percentage points off its cash rate since September last year.

Suncorp-Metway's flexiRateseOptions won the term deposit short (30 to 330 days). It offered rates ranging from 3.5 per cent for 30 days to 4.1 per cent for 120 days and 3.7 per cent for 270 days.

Consistency and competitive returns have been pivotal in crowning it this year, especially in an environment where consumers see fixed-cash investment as a safe haven, judges Infochoice said of the winner.

Highly commended were CUA and Bank of Cyprus.

In the long-term category (360 days plus), the Newcastle-based Greater Building Society was the winner with its fixed-term deposits offering rates of between 3.6 per cent and 4.8 per cent during the judging period.

A regional manager at Greater Building Society, Kevin Buckley, says offering attractively priced deposit rates also enables it to serve customers on the borrowing side of the business.

We offer an attractive rate and that allows us to lend ... We're certainly committed to serving our members," he says. "The thing about the building society is that we've got personalised service.

Other finalists in this category were Arab Bank and RaboPlus.

AMP eASYCash Management won the cash management category with a rate during the period of 3.75 per cent.

It was launched in August last year with the aim of providing customers with a product without complex and onerous conditions. It has no minimum or ongoing balance requirements.

Highly commended were CommSec and Arab Bank.