Beware Absa’s 13% interest rate fine print

Absa is aggressively promoting its latest fixed investment product, which promises up to 13% interest per year.

Absa’s advertising campaigns include the statements:

Meet your goals and get the most with 13% interest p.a

Earn the best rate in the market of up to 13.00% p.a for minimum investment from R100 001

Earn up to 13.00% minimum investment of R100 001 – Limited Special Offer

In a recent article, Moneyweb highlighted that this 13% interest is not compound interest, but the simple annual interest rate over a 5-year period.

The annual interest rate for this investment, when shown in terms of monthly growth, is actually 10.05%.

Independent financial advisor John Bustin called this advertising strategy from Absa misleading, saying Absa should clearly disclose that it is simple interest over a 5-year period.

“The defence that it is fully explained on the website may be legally valid, but not morally.”

The table below shows the monthly interest in relation to the simple interest on maturity.

Absa responds

Absa told MyBroadband that when customers are quoted a rate, they are quoted on the basis of a simple interest calculation against the contractual term.

“We are therefore comfortable that customers understand and appreciate that their rates will always be different on the basis of their investment options,” Absa said.

“Put differently, 13% is a compound effect of the nominal rates of 10.05% if the investment term is five years. This is also consistent with the industry practice.”

Absa added that they had the option to use either 10.05% or 13% per annum, and then “deliberately chose 13% to provide maximum benefits to customers who are able to be resilient to afford a 60-month investment period”.

Absa’s “misleading advertising” defence

When quizzed by Moneyweb about its advertising being “cynical”, Absa said “we believe that the Advertising Standards Authority of South African would have already approached us had we been seen as misleading our customers”.

This defence by Absa does not hold water for two reasons.

1. The Advertising Standards Authority of South African is not a pro-active enforcer of advertising regulations – it only acts on complaints from consumers or competitors.
2. The Advertising Standards Authority of South African is being liquidated and has ceased operations.

To say your advertising is not misleading based on no feedback from an organisation which is no longer operating – and which, when operating, does not proactively pursue potential infringements – is either disingenuous or uninformed.

Absa did not answer questions from MyBroadband regarding its defence.

Absa fixed deposit TV advertisement

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