26 Exercise: The bonus saver account
Many banks offer a ‘bonus saver’ account. The major feature of these accounts is the ability to earn “bonus interest” each month if the customer satisfies certain criteria, such as making a deposit each month, withdrawing no savings, growing the balance, or making a minimum number of card transactions.
When these accounts are offered, many account holders do not receive bonus interest each month. They fail to make the required deposits, withdraw funds despite the effective penalty, and do not make the requisite number of transactions. Many customers accumulate no substantive savings or regularly withdraw their accumulated balances.
A range of customer characteristics could be causing those failures, including:
Lack of attention or mental lapses, leading them to forget to deposit or to make a withdrawal without considering the consequences
Present bias, whereby withdrawn money has far higher value today that the savings or potential interest
Regret/disappointment aversion, whereby customers do not deposit (or constrain deposits) as they fear they may regret that later if they have to withdraw
26.1 Designing the bonus saver account
What changes to product design could lead to better customer outcomes?
One simple intervention to improve the customer decision would be to remove the requirement for deposit and/or withdrawal. The customer would no longer have an opportunity for failure, and the ‘bonus’ interest would be paid by default.
There are some questions we might wish to ask before taking this step:
Do the criteria to receive the bonus interest incentivise the accumulation of savings? Would removal of the criteria have unintended consequences for some customers?
Does this feature enable better pricing? What would be the negative effect on the interest received for those who normally met the criteria?
What are the distributional consequences of the pricing arrangement? What are the characteristics of those who fail to receive bonus interest and those who might receive lower interest if pricing was changed?
Obviously, the bank would likely have other questions. Does the ability to advertise a higher interest rate assist marketing? Is the product viable without the attraction of the bonus rate?
26.2 Distributing the bonus saver account
You suggestions to improve product design have not been accepted. What measures could you introduce during the sales process to increase the proportion of customers who appropriately select the product?
26.3 Servicing the bonus saver account post-sale
What post-sales measures could you introduce to increase the proportion of customers who receive the bonus interest each month?