Self-funded retirees and other investors managing the defensive portion of their portfolio now have something to cheer about. Some term deposit rates now start with a big figure of ‘4’, and there are ‘3s’ everywhere!
They are a long way above the current RBA cash rate of 2.35%, which now looks likely to increase by another 0.5% when the RBA Board meets in early October. On Friday, RBA Governor Phillip Lowe addressed the House of Representatives Economics Committee.
Analysing his appearance, the NAB Economics team commented:
“RBA Governor Lowe very clearly communicated the view of the RBA that more interest rate rises are needed in the months ahead. Governor Lowe noted that ‘the general inflation psychology appears to be shifting’ and demand ‘has been very strong relative to the ability of our economy to meet that demand’. Lowe repeated that the case for large rate increases diminishes the higher rates rise and with rates nearer a normal setting and indeed confirmed that the October board meeting would debate the options of a 25bp or 50bp increase. At the same time the Governor noted that 2.35% was on the low side for the range the Bank would consider ‘normal’.”
“NAB now expects a fifth consecutive 50bp increase from the RBA in October and a cash rate target of 3.1% by end-2022”.
Other Banks have higher targets, and if these eventuate, term deposit rates will move even higher. But with rates of between 3.25% and 3.75% available for 12 months (including from some of the majors and Macquarie), there is a bit of a premium available for retail investors.
The best term deposit rates
With more than 140 ADIs (Authorised Deposit-taking Institutions) covered by the Government Guarantee on depositors’ funds, it can pay to shop around to secure the best rate. Don’t be put off by security concerns because with the effective Commonwealth Government guarantee on deposits of $250,000 on a per client per financial institution basis through the Financial Claims Scheme, Bank A is as good as Bank B up to $250,000.
Listed in the table below are rates on offer for the popular terms of 3 months, 6 months, 1 year, 3 years and 5 years. Rates are current as at 16 September and are based on a deposit of $50,000 with interest paid on maturity, or annually for terms of 3 or 5 years.
Rates are shown for the four major banks and 15 regional/significant/online other banks. The major banks typically pay lower rates than the online banks and regional banks. The highest rate is highlighted in green.
Macquarie is offering across-the-board high rates, with the highest rates for 6-month and 12-month terms. At 3 years, its rate of 4.05% pa is pipped by both Judo Bank and AMP Bank, the latter paying 4.20% pa. For 5 years, AMP Bank is paying 4.45% pa. Amongst the majors, both NAB and Westpac have 12-month “special” rates of 3.25%.
Some banks, such as UBank, reward loyalty by paying an additional 0.10% pa when an investor rolls over the full amount of a term deposit to a new deposit term.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.