Commonwealth Bank unwinds term deposit rate rises

CBA has quietly unwound some term deposit rates promoted as it held back half the RBA rate cut from homeowners.

Ian Narev next week faces a parliamentary committee. Pic: Adam Yip

Commonwealth Bank has quietly unwound a handful of term deposit rates put in place to offset the fallout from holding back half the Reserve Bank’s rate cut from homeowners.

Ahead of hearings by the big four banks before a parliament committee next week, CBA (CBA) has sliced one-year term deposit rates to as low as 2.4 per cent, down from the 3 per cent promotional rate following the RBA’s lowering of the cash rate to a record low 1.5 per cent in August.

CBA’s two-year deal has also been dropped to as low as 2.45 per cent, from 3.1 per cent, while the promotion on the bank’s three-year term deposit was left unchanged at 3.2 per cent.

CBA’s big four rivals are yet to cut similar promotions, according to Canstar.

“The fact that CBA has decided to drop its term deposit pricing within a month of increasing it just goes to show that it was always a temporary measure intended to make their decision to withhold part of the cash rate reduction more politically palatable,” said Omkar Joshi, an analyst at Watermark Funds Management.

The big banks have previously unwound similar deposit promotions when the heat dies down following controversial mortgage rate changes.

The move comes as CBA chief Ian Narev prepares to front the House of Representatives standing committee on economics on Tuesday, when he will be grilled on the bank’s interest rate changes and treatment of small businesses.

Westpac’s Brian Hartzer, National Australia Bank’s Andrew Thorburn and ANZ’s Shayne Elliott will also front the committee after Prime Minister Malcolm Turnbull ordered the bank bosses to appear at least annually in an attempt to quell Labor’s call for a royal commission.

Labor’s royal commission push, which has support from the Greens and some crossbenchers, grew louder after the big four banks and several other lenders held back around half of the RBA’s 25 basis point rate cut from mortgage holders in August.

CBA, the nation’s biggest lender, cut variable mortgages 13 basis points and raised the longer duration term deposit rates, arguing the bank had to meet the needs of depositors, borrowers and shareholders.

The RBA has since however noted that 12-36 month term deposits make up less than 2 per cent of the major banks’ funding, reducing the impact on margins.

An RBA study this month also found changes in interest rates had a “much stronger” effect on households than depositors, finding average borrowers hold two to three times as much net debt as average lenders holds in net liquid assets.

Suncorp, ING Direct, Bank of Queensland, Bendigo and Adelaide Bank and AMP have also cut term deposit rates maturing in at least one year in the past fortnight, according to Canstar. Bigger investments attract better rates, with CBA paying 2.5 per cent for a $50,000 one year term deposit versus 2.4 per cent for $10,000.

Clive van Horen, CBA’s executive general manager of retail products and strategy confirmed the deposit rate reductions, noting the bank would always remain competitive and “tens of thousands of new and existing savers” were receiving good value.

He noted the three-year deal was still paying 3.2 per cent amid “record low” interest rates.

“Interest rates offered by Commonwealth Bank reflect a number of factors including local and international funding markets, regulatory requirements and competitive conditions and we frequently review our product offering to ensure they reflect market conditions,” he said.