The interest rate war between Pick 'n Pay Financial Services and the banks is hotting up after Pick 'n Pay recently complained to the Advertising Standards Authority about an advertisement by The Perm.
It challenged The Perm's newspaper advertisement which told people they could earn a "truly remarkable" effective interest rate of 16,65 percent in a Money Market investment.
This figure was based on a current nominal rate of 15,25 percent but included a special bonus of 0,25 percent a year until December 31, 1997. (The effective interest rate is higher than the nominal rate because interest is paid monthly and it is assumed you reinvest.)
Nicholas Bicket, Managing Director of Pick 'n Pay Financial Services, says on the face of it the figures were quoted correctly. But although there is avariable base interest rate of 15,25 percent, the 0,25 percent bonus only applies until December 31 this year.
"Therefore the effective rate is not 16,65 percent but closer to 16,4 percent (16,65 percent minus 0,25 percent) while the base rate is sustained."
Bicket says advertisements of this nature prejudice honest advertising by other financial institutions.
The Perm has not used the advertisement since, but says it was in the process of changing the advertisement in any case because interest rates vary daily.
Jack Trevera, Assistant General Manager of Retail Banking at the Perm, says the advertisement was not misleading.
Trevera says the entire industry quotes annual effective rates.
"What we wanted to do is lift out the 0,25 percent, but the complaint came through and we acknowledged it."
The Perm now quotes a new underlying monthly rate of 16,13 percent (on a new nominal rate of 15,05 percent). This excludes the introductory bonus of 0,25 percent, valid until December 31, unlike its original advertisement.
Bicket believes financial products have been shrouded in mystery to the extent that people don't really understand them and therefore cannot be very discriminatory about them.
Banks have traditionally controlled financial products tightly and few people know what interest rates they are paying.
Bicket says it is interesting to see how many banks have started marketing at a high level since Pick 'n Pay Financial Services was launched.
"Some have come in not so much on price, but stressing other areas of service such as face to face banking or the comfort of having a cup of coffee when you go to the bank."