Can your choices change your banking benefits or interest rates?

But what if personal choices could increase interest when saving and lower it when borrowing money?

We need to understand that our financial decisions are often irrational. In the podcast, Little things you do bring big gains to managing money well, David Leibowitz, an Associate Specialist at Discovery Bank, says, "Our tools can help people identify healthy money decisions that, with consistency, create more financial value. This is key to sustained financial wellbeing."

"This financial value comes in the form of better interest rates and other banking rewards; illustrated in the fact that since 2019, Discovery Bank clients have saved over R13 million on interest from their borrowings. They've also earned over R15.5 million in savings rate boosts."

Listen to the podcast here:

How interest rates are traditionally determined

Banks - which essentially borrow your money when you save with them - determine your savings interest rates based on the level of risk associated with the loan. And traditional credit models mainly use income to determine your credit risk. But, as discussed in this podcast episode, research by Discovery Bank indicates that behavioural factors and the financial decisions we make can be even more important.

Studies show that over 10% of people who earn over R1 million a year have a credit score typically associated with experiencing material hardship. Typically, such people would receive a good interest rate on their credit, even though they demonstrate risky financial behaviours. Conversely, some people who earn less are far more prudent with their money. This begs the question - do financially savvy clients deserve better interest rates because they pose a lower risk?

Dynamic interest rates that adjust to your money habits

Discovery Bank certainly thinks so, and they employ this more equitable approach to reward clients for healthy money behaviours. As a shared-value bank, their Vitality Money programme segments clients based on their behaviour and not just on their socio-economic status or income.

This extra layer of segmentation identifies Discovery Bank clients who make smart money choices that lower their risk profile. Due to the lowered risk based on behaviour, the Bank can reward clients with better interest rates. But, does it work?

Behavioural banking has delivered over R15.5 million in savings rate boosts

Discovery Bank compared the interest clients pay on demand deposit accounts across 43 countries, which were segmented by Moody's Banking country risk indicators.

The study revealed that Discovery Bank offers one of the best savings interest rates in the world among countries considered to have the lowest banking risk, such as Great Britain and Switzerland. In fact, a client on Diamond Vitality Money status with a 24-hour notice demand savings account earns more than double the average South African interest rate; and at a higher rate than any other country with a low banking risk.

While it's possible to change financial behaviour to manage money well, Leibowitz explains how important it is to have open conversations with children about money. Those who are familiar with finances and how to work with money from a young age, are more likely to become active savers, to budget, and to plan for retirement. "On the other hand, children who don't get exposed to that are more likely to default or struggle in later life. The way of breaking that cycle is by creating better access to financial education."

For more on the relationship between people and money, and how personal choices can drive your financial success, catch Leibowitz and other expert guests in the Your Money Matters podcast series with business journalist Bruce Whitfield.