Term deposit interest rates fall as banks bet on RBA rate cuts

Big banks have quietly started slashing term deposit rates ahead of any Reserve Bank moves, so it’s time for savers to examine what they’re getting.

Savers can still get a good deal from banks if they shop around. Artwork: iStock

Banks have started cutting their term deposit interest rates, signalling that Reserve Bank of Australia rate cuts are on the way and prompting a fresh warning for savers to check their accounts.

In the past week the Commonwealth Bank, NAB, ANZ and several others have reduced a range of term deposits, and savings specialists expect more to follow as financial markets increasingly tip an RBA rate cut before Christmas.

A few term deposit rates have risen, mainly for shorter terms under one year, but overall there has been a “sea of cuts”, says research group Canstar.

It says both ANZ and NAB slashed a range of rates by up to 0.8 and 0.5 percentage points respectively this week, but both increased their eight-month rate.

Canstar’s director of data insights, Sally Tindall, said the looming likelihood of RBA rate cuts was one reason why term deposit rates were shrinking, but other factors also influenced banks, including competition and their need for deposits to fund their home loans.

“They are likely to continue to fall in the months ahead, particularly if we don’t see a Reserve Bank interest rate rise,” she said.

Twelve providers have cut 57 term deposit raters in the past week, and just five providers had nine rises, she said.

Term deposit rates remain higher than their long-term average thanks to an RBA cash rate at its highest level in more than 12 years. Five years ago they were all under 2 per cent.

“It’s been savers’ time to shine – they are seeing a lot more interest in their bank accounts,” Ms Tindall said.

“But like everything in personal finance, there’s a huge range within the market,” she said.

Every big four bank’s highest rate now was 4.8 per cent, for deposits of eight, nine or 11 months, she said, but this was below the best rates in Canstar’s database of 5.3 per cent for six months and 5.2 per cent for 12 months, both offered by Illawarra Credit Union.

Ms Tindall said savers should keep an eye on their current rates for term deposits and at-call savings.

“Whatever you do, don’t do nothing,” she said. “If you roll it over you might find yourself missing out on important interest.”

Comparison website Mozo.com.au says both short and long-term deposit rates have been dropping.

“Last week, the Commonwealth Bank cut its 12-month term deposit rates by 60 basis points, following the likes of Rabobank, Heartland and Macquarie Bank who cut one-year rates by 40, 20 and 25 basis points respectively since the beginning of August,” Mozo finance specialist Rachel Wastell said.

“Commonwealth Bank reduced its five-year term deposit rates by 40 basis points and trimmed its two-year term rates by 15 basis points. Bankwest cut its two-year term deposit rates by 40 basis points. Macquarie Bank followed suit, reducing both its five-year and two-year rates by 25 basis points each.”

Ms Wastell said the term deposit trend suggested that financial institutions were positioning themselves for RBA rate cuts.

“If your term deposit is about to reach maturity, and you don’t need access to those savings, it might be a good idea to lock in a new term deposit now,” she said.

“There is still an opportunity for savers to lock in a rate around 5 per cent for the next two-to-five years.

“But it’s crucial savers remember that term deposits lock away your savings with hefty fees for early exits.”

Originally published as Term deposit interest rates fall as banks bet on RBA rate cuts