Mortgage holders might feel worse off as the major banks refused to pass on a full rate cut, but money savers should be cheering – well maybe just a little.
Usually term deposit rates are increased when money market cash rates are going up, yet this week we saw the Reserve Bank of Australia cut the official cash rate to 1.5 per cent from 1.75 per cent – an historically historical low as everyone keeps saying.
But the banks are a very competitive mob and they want your savings dollars. They want you to keep parking your trusted funds with them and so we now have at least 11 lenders that have lifted their term deposit rates, by as much as 0.85 percentage points.
According to Bloomberg, lenders are battling to hold on to deposits to meet regulatory rules that require them to hold more capital as a buffer against risk. At the same time as holding this extra cash, the banks are under pressure from shareholders to remain profitable.
Analysis by product comparison site, finder.com.au shows the major banks are increasing their term deposit rates to above the market average 12 month and 36 month term deposit rates of 2.48 per cent and 2.64 per cent, respectively.
ANZ Bank, Commonwealth Bank and Westpac have increased annual rates of 3 per cent for 12 month term deposits, up by 0.52 percentage points.
Commonwealth Bank and Westpac have also announced an updated 36 month term deposit rate of 3.2 per cent, an uplift of 0.56 percentage points.
ANZ Bank has also announced a 24 month term deposit rate of 3.2 per cent, which is an increase of 0.75 percentage points.
NAB, meanwhile, has announced a new 8 month term deposit rate of 2.9 per cent, an increase of 0.85 percentage points.
Other lenders that have announced increases to term deposit rates include Newcastle Permanent Building Society and Bank of Melbourne.
Bessie Hassan, spokesperson at finder.com.au, says banks may be lifting term deposit rates to preserve their competitive ability to raise deposits and to ensure they have capacity to cope with any future political or economic shocks.
“Financial institutions need a sufficient ratio of money borrowed and cash deposits to protect themselves if their loan books go sour. For example, any disruption in the property market or overseas economies could hurt their bottom line,” she says.
Ms Hassan says banks are curbing the trend by lifting term deposit rates, so there’s opportunity for Australians to pocket greater savings in the form of interest earned on funds.
As at the end of July, the average interest rate for all variable savings accounts was 2.66 per cent however this rate may lower if banks pass on rate cuts for savings accounts, so there’s incentive for Australians to consider a term deposit account with a higher rate.
Term deposits: how much extra you can earn
| Deposit amount | 12 months at 2.48% interest | 12 months at 3.00% interest | Difference | 36 months at 2.64% interest | 36 months at 3.20% interest | Difference |
| $10,000 | $248 | $300 | $52 | $813 | $991 | $178 |
| $25,000 | $620 | $750 | $130 | $2033 | $2478 | $445 |
| $50,000 | $1240 | $1500 | $260 | $4065 | $4955 | $890 |
| $100,000 | $2480 | $3000 | $520 | $8131 | $9910 | $1779 |
| $200,000 | $4960 | $6000 | $1040 | $16262 | $19821 | $3559 |
source: finder.com.au, interest compounded annually.
