Interest rates on term deposits may head south sooner

The best term deposit rates are starting to shrink, prompting savvy savers to act swiftly and consider fixing.

The likely peak in the Reserve Bank’s official interest rate means cash savers face the end of their purple patch for term deposits, and falls could come faster than expected.

The top term deposit rate of almost 5.35 per cent has just been cut, and more are expected to drop before the RBA begins reducing its cash rate, which could be as soon as early 2024.

Savers are being urged to look beyond the big four banks if they want to grab the best possible rate.

Research groups Canstar and RateCity say the best term deposit rates on the market are now 5.25 per cent, after Australian Military Bank slashed its market-leading two and three year rates from 5.35 to 4.85 per cent on Tuesday.

A growing number of economists believe the RBA won’t increase its cash rate again, although there are mixed opinions about this and also around the timing of future cuts.

Canstar group executive financial services Steve Mickenbecker said in the absence of further RBA rises, it was difficult to see term deposit rates rising “further in this cycle”.

“When the interest cycle turns, it almost always turns earlier and faster for term deposits than for at-call savings accounts and loans,” he said.

“Across all terms, the big banks are around 1 per cent shy of the best rates in the market. After a long wait for reasonable rates, investors owe it to themselves to hunt down rates among the price leaders.

“With a government guarantee for deposits of up to $250,000 saved in an authorised deposit-taking institution, term depositors do not need to feel constrained to just the familiar brands of the big four banks.”

Mr Mickenbecker said savers should shop around for the best deals, avoid auto-renewals when deposits matured, and choose their terms with care.

“Be prepared to shop outside of the regular term periods, for example, there could be great special offers on an 11-month or 13-month term deposit that might still suit your needs, so it could pay to keep your options open,” he said.

RateCity research director Sally Tindall said the outlook for term deposits depended on what the RBA would do over the next 12 to 24 months, “something even the Board has no clear answer on”.

“Looking at the big four bank economic forecasts, CBA is predicting cash rate cuts as early as March of next year, while ANZ isn’t expecting a cut until the end of 2024 at the earliest, and NAB still has one more rate rise pencilled in towards the end of this year,” she said.

“What this tells us is that if the best and brightest economic minds can’t agree on what the future holds, then understand when you’re locking in a rate, it might not go 100 per cent the way you expect.”

Ms Tindall said banks that often had high term deposit rates included G&C Mutual and neo-bank Judo.

She said the tide was already turning on term deposits, with more financial institutions cutting rates.

“In the last month, 31 banks have cut at least one term deposit rate, while 23 banks have hiked at least one rate. In previous months more banks have hiked than cut.”

Ms Tindall said savers should pick a term they could stick to, read the fine print and compare term deposit rates with high-interest savings accounts.

“The top at-call savings rates are still notably higher than the highest term deposit rates,” she said.

“While the next move to the cash rate could be down, consider both options and make an informed decision … there’s no guarantee there won’t be another rate hike, potentially even two.”