Time to bank on higher deposit returns: Robert Gottliebsen

CBA could take the lead in ensuring customers get fair returns on deposits. Picture: Annette Dew

The bank deposits dam wall has broken.

For more than two years, banks have been maintaining margins during the era of very low mortgage interest rates by slashing the amount they paid to depositors.

Now, If they are smart, depositors can secure better returns with the big banks, albeit still well below inflation.

But a warning: a number of the banks are playing games to try and maintain their profit margins at the expense of depositors.

Unwary savers can be trapped into the old, very low rates.

I will detail below some the games I have discovered, but there will be many more.

I urge the chief executives of the banks playing those games to demand that their executives play fair with customers.

The higher bank deposit rates come at a time when US, Australian and European share and loan markets have been wobbling, causing many investors to increase the cash component of their portfolios.

However, they discover that the bank depositor market has become akin to the electricity market jungle and those who simply think that banks and electricity providers will look after them are punished.

Like power users, bank depositors have to monitor what their banks are doing and be prepared to negotiate to obtain better interest rates and then swap banks if necessary.

Morgan Research shows that the community distrusts most of the banks and the antics of some of the big banks in this new dawn of depositing will entrench that community view.

Here are a few of the traps*:

• By far the majority of bank term deposits are for one year and if you take no action the bank rolls the deposit into the previous time period. Accordingly, one-year deposits can be very dangerous. Sadly, the largest deposit taking bank, CBA, and the ANZ are both playing “games” that can dupe one-year depositors. CBA’s one-year deposit is still a pitiful 1.25 per cent (1.2 per cent for amounts under $100,000), so unwary depositors will simply roll over their deposit at these ridiculously low CBA rates unaware but the bank is offering 3 per cent for 18-month deposits.

• The ANZ Bank is playing the same game with a twist. The ANZ one-year term deposit rate is also 1.25 per cent. But if ANZ customers put their money on deposit for 11 months, they receive 3 per cent. Words fail me.

• In contrast, both NAB and Westpac both offer the 3 per cent rate for the standard one-year deposit. No game playing.

• The Macquarie one-year rate is 3.65 per cent. NAB customers tell me that if they push hard, NAB will match. I suspect many other banks are the same.

I emphasise again that each of the four banks will negotiate much higher term deposit rates for larger sums of money and for valuable clients.

Of course many individuals, self managed funds and enterprises don’t want their money tied up for 12 months, so must play in the “at call” or very short term market, which is even more chaotic than term deposits.

I have discovered examples of game playing.

Bendigo Bank have accounts that gives individual customers quick access returns of around 1.6 per cent, but when self managed funds or enterprises want that rate they are offered around a quarter of that return.

The cashed-up enterprise customer has to play hardball.

Macquarie Bank have cash management cheque accounts that offer 0.9 per cent rate, which is better than many banks – but I also have a so-called “accelerator” cash account which currently offers double that rate, but requires an “advisor” to access.

The CBA attaches a “bonus rate” to some of its call accounts, which delivers a good rate for only five months.

A great many Australians have being forced into either the equity market, bank hybrids or the corporate loan market to gain returns.

But in recent times, equities have been much weaker and long-term corporate bonds have declined in price.

Many people simply left their money in their bank accounts and accepted no interest on it rather than take the equity or bond risk.

But now the dam wall has broken, it’s time to change strategy and secure proper deposit returns and banks need depositor funding.

Back in June 2008, just before the last recession, the Commonwealth Bank had just 55 per cent of its funding from local deposits.

By June 2021, that total had reached 73 per cent and it edged up to 74 per cent in the year ended June 30, 2022.

The CBA has attracted more deposits than most other banks and this has enabled it, in most years, to offer slightly lower interest rates.

CBA does not need to be among the bank depositor game players, it could even provoke a community backlash that will damage shareholders.

*All mentioned rates are advertised on banks’ websites, as at 6:00am AEST, Monday September 5.