Upworthy's Maxime Chaury proposes a revamp of the savings arena
In an exclusive interview, Maxime Chaury, co-founder of Upworth, a groundbreaking Australian savings platform, discusses the substantial potential earnings Australians are leaving on the table by opting for suboptimal savings accounts. With its personalized insights, Upworth aims to empower everyday Australians to maximize their savings efficiently.
In this extensive interview, Maxime unveils eye-opening statistics about the savings industry and offers actionable advice on navigating the often complex landscape of savings accounts. From discernment between various types of interest rates to recognizing psychological biases that influence our financial decisions, Maxime provides valuable insights to help Australians take control of their savings.
Key Industry Statistics
According to Maxime's findings, Australians collectively miss approximately A$30 billion in interest earnings every year. This equates to an average loss of A$1,474 per adult annually, without even considering the transfer of household deposits to higher-yielding offset accounts, held by 60% of Australian mortgage holders. Over a five-year period, this amounts to an average loss of A$8,228 per adult.
Additionally, household deposits represent a growing A$1.47 trillion money pool—up by 6% per annum over the previous ten years, almost double the amount in 2008. Deposits are coveted by banks due to their low costs, stability, and long-term client relationships.
Concentration of Power in the Savings Account Industry
The Big Four banks control a disproportionate 73% of savings deposits, as per APRA data from April 2024. This concentration of power can negatively impact interest rates and options available to consumers by limiting competition.
Savings Account Types Explained
Maxime explained three core concepts essential to mastering the savings account game: interest rate types, conditional versus unconditional savings accounts, and balance tiering.
1) Interest rate types
There are four types of interest rates, with the base rate serving as the foundation, followed by bonus and introductory rates. Headline interest rates encompass all three components.
2) Conditional vs. unconditional savings accounts
Conditional savings accounts pay a headline interest rate consisting of a base rate and (if conditions are met) a bonus rate. Failure to meet any requirement means that only the base rate will be paid. Unconditional savings accounts provide the base rate without any stipulations.
3) Stepped vs. tiered interest
Interest payment methods can be divided further into stepped and tiered systems. Stepped interest payments base the applicable rate on the portion of the account balance within a predefined tier, while tiered interest pays a flat rate for the entire balance within a specific tier.
Psychological Biases and their Impact
Maxime highlighted five psychological biases that often affect people's savings account management, including status quo bias, present bias, loss aversion, overconfidence, and information overload. Awareness of these biases can help individuals make more informed financial decisions.
By being aware of the savings account landscape, biases that influence our decisions, and utilizing tools like Upworth's Scanner, Australians can make more informed decisions to maximize their savings potential.
In the interview, Maxime Chaury reveals that a substantial amount of A$30 billion is collectively missed each year by Australians in interest earnings due to suboptimal savings accounts, which translates into an average annual loss of A$1,474 per adult. Furthermore, consumers may find themselves at a disadvantage in the savings account industry, as the Big Four banks control 73% of savings deposits, potentially limiting competition and negatively impacting available interest rates. To navigate this complex landscape, it is essential for Australians to understand financial concepts such as interest rate types, conditional versus unconditional savings accounts, and balance tiering. Additionally, recognizing psychological biases like status quo bias, present bias, loss aversion, overconfidence, and information overload can help individuals make more effective financial decisions, ultimately enhancing their personal-finance and lifestyle through efficient savings strategies. By leveraging tools like Upworth's Scanner, Australians can take control of their finances and make informed choices to maximize their savings potential in an increasingly technology-driven world.
