The growing popularity of neobanks in Australia

Neobanks are becoming increasingly popular in Australia as people look for different avenues to manage their money. The recent banking royal commission has also seen people look for solutions outside the big banks for financial products.

What is a neobank?

Neobanks are digital banks. They don’t have any bricks and mortar branches, and you interact with the bank almost entirely on your smartphone through the neobank’s app. The presence of neobanks has grown rapidly in Australia since 2018 when the government passed legislation allowing neobanks to obtain a restricted authorised deposit-taking institution (ADI) licence for two years as they build up their business.

As primarily app-based banks, neobanks offer additional in-app features that you may not see in your traditional banking apps.

What neobanks are available in Australia?

Many digital banks have established themselves in Australia since 2018. Some of the big names include:

  • Xinja (pronounced zin-ja): Offers products including, ‘Stash’, a high-interest savings account and a transaction account. It will launch loans and mortgages next year.
  • 86400 (pronounced 86-400): Offers high-interest savings accounts and it’s the only neobank that directly provides home loans.
  • Volt: Launching soon. Waitlist customers currently have access to a savings account.
  • Up: Operates on Bendigo and Adelaide Bank’s licence. Offers savings and transaction accounts.
  • Judo: Specialised in business lending.

What are the pros and cons of banking with a neobank?

One of the biggest advantages of banking with a neobank is reduced costs. With no branches and lower demand for resources than traditional banks, you can expect your fees to be lower with a neobank. This also feeds into the ability to offer customers higher interest rates on deposits and competitive mortgage rates.

With a neobank, there’s no need for paperwork or physical forms as everything is done through the app. The tech-focused nature of neobanks also provides customers with data-driven insights, such as identifying higher than normal bills and charges for forgotten subscriptions.

As a relatively new entrant to the industry, the major downside, if you like doing things in person, is that there are no branches to visit. Further, if you like to have a range of banking products in one place, a neobank may not be for you as most in Australia only offer savings accounts, transaction accounts and limited financing facilities.

Is my money safe in a neobank?

All neobanks need to pass APRA’s lengthy regulatory process to secure an ADI. Just like traditional banks, customer deposits up to $250,000 are guaranteed by the government.

How to invest in a neobank?

Investing in a neobank can take place during a capital raise period. Xinja, for example, launched their first retail crowdfunding campaign in 2017, allowing people to invest from just $1,000.

Neobanks represent the changing face of banking and financial sbanervices in Australia and people are now more open to banking outside traditional banks. Before you switch to a neobank, make sure you do your research to decide if it’s the best option for you.

The opinions and recommendations provided are not intended to be relied upon as personal advice as they do not take into account your personal circumstances. You need to assess your own position or call us for professional advice.

 

Get in touch with our expert team to learn more.

The faster way to a life supported by passive income

Imagine that… without any effort on your part, enough money regularly pours into your bank account to meet (or exceed) all your living expenses. Suddenly, work becomes optional and a world of opportunities opens up. That’s the ultimate in passive income – all your financial needs met without lifting a finger.

The fast way to a life supported by passive income is to win the lottery or receive a large inheritance. Invested wisely, large lump sums can generate rental income, interest, share dividends and capital growth, all of which can replace an earned income but without the hard work.

Other forms of passive income include royalties on book sales, licensing fees on patents and, increasingly, income associated with creation of Internet content, such as YouTube videos. However, while these passive income streams may become geese that lay golden eggs, it takes a lot of effort to write a book, develop an invention, or create popular Internet content.

And the unfortunate reality is that we can’t all be lottery winners or best-selling authors, genius inventors or Internet sensations. We can, however, start to build a nest egg that will grow over time, to replace our active income in the future. In fact, if you’re working and receiving employer superannuation contributions, you’re already on the path to generating a passive income. You may just have to wait awhile until you can enjoy it. With its generous tax breaks, superannuation is likely to play a leading role in most passive income strategies. However, with its restrictions on access, if you are some years away from retirement age you may want to pursue a more flexible approach to developing a passive income stream. How? It all begins with a savings plan.

This simply involves making regular contributions to a suitable investment vehicle. This might be an interest-paying bank account, but as your nest egg grows you can diversify into potentially higher performing investments such as managed funds, direct shares and or even direct property.

Importantly, by reinvesting the income produced by your savings plan you’ll tap into the power of compound interest. Over the long term, compounding is the powerhouse that will contribute the most to your future passive income stream. As the income produced by your portfolio increases, so do your options. For example, you might want to cut back to working part time.

One other form of passive income worth mentioning is the age pension. If you’re over age pension age it may be a good idea to investigate strategies to maximise your pension entitlement. Just make sure the overall result is positive.

Ready to pursue the potential of passive income? Your Bridges financial adviser will be happy to help you take that first step. Book an appointment today!

Three things you may have forgotten to plan for in retirement

Retirement can be an exciting phase in your life. But all the recent changes to superannuation bring with them lifestyle and financial issues you need to be aware of as you plan your retirement.

Retirement means different things to different people. For some, it’s an opportunity to travel, to begin that project they’ve been putting off for years, or to just relax, spend time with the grandkids and dabble in their favourite hobbies. Retirement should be a time to relax and be free.

 

Plan smart for a stress-free retirement

Your retirement should be a time to free yourself from financial stress. Planning and good advice from a qualified financial adviser is the key to a trouble-free retirement.

If you’re considering retirement, there are issues you need to think about and plan for before you take the plunge. Here are three areas retirees commonly overlook in planning for their retirement:

 

  1. Have a re-contributions strategy

Our experience in talking to prospective retirees is that few have heard about a ‘re-contribution strategy’. So, we’d like to take this opportunity to explain what it is and provide some more detail.

Your superannuation entitlements comprise both taxable and tax-fee components. A re-contribution strategy is one where you withdraw your money from your superannuation account and re-contribute that cash back into your fund.

Why a re-contributions strategy may be important

Re-contributing all or part of your withdrawn funds back into your superannuation as a tax-free non-concessional contribution increases the level of tax-free funds in your superannuation account.

This reduces the tax payable on your superannuation pension if you dip into that pension while under 60 years of age. A re-contribution strategy can also lower the tax payable on benefits paid to your beneficiaries when you direct your superannuation benefit to your non-dependent beneficiaries following your death.

 

  1. Death nominations

A lot of retirees often forget death benefits are payable to your dependents or your estate from your superannuation fund upon your death.

There are four forms of death nominations which may be allowed by your superannuation fund.

You can make a binding death benefit nomination while you are alive. This is a written direction to your superannuation trustee establishing who you wish your superannuation death benefits to be distributed to.

Secondly, a reversionary nomination is where a superannuation fund member receiving an income stream nominates a beneficiary to whom the income stream will continue to be paid upon their death.

Thirdly, you can make a non-binding death benefit nomination guiding the trustee to whom you wish some or all of your superannuation death benefits is be paid to following your death.

Lastly, you may make a non-lapsing binding death benefit nomination directing your superannuation trustee to distribute some or all of your superannuation death benefits to your eligible beneficiaries or legal personal representative. This nomination remains in place unless you cancel or replace it with a fresh nomination or the superannuation trustee is aware your circumstances have substantially changed (e.g. you married, divorced or had a child).

Why a Death Benefit Nomination is important

If you don’t dictate how your superannuation death funds are to be distributed, the trustee of your fund has discretion who to pay your superannuation death benefit to in the event of your death.

 

  1. Ensuring your money will last and maximising Centrelink

Australia’s social security system is means tested. It is designed to act as a safety net. So, the higher your income or assets you have when you are assessed, the lower your Age Pension entitlements may be.

If your income or assets exceed the set cut off limits, you will not be eligible to an Age Pension at all. Hence Australians are expected to use more of our own savings to fund our retirement.

Currently, for every $10,000 of assets above the allowable Age Pension threshold your pension drops by $390 per year each if you’re member of a couple or $780 per year for singles.

Why ensuring your money lasts is important!

The more-heavy lifting your pension does, the less you’ll draw on your retirement savings. This is important as our increased life expectancies coupled with a turbulent investment environment make it challenging to ensure your retirement savings will go the distance.

 

Final observation

Planning your retirement can be complicated. As you can see from the above three issues, the various legislative frameworks are complex. While it pays to understand how retirement works, contact a qualified financial adviser to discuss your personal situation and retirement needs.