Where to find the best term deposit rates
It's been just over a week since the Reserve Bank increased the cash rate to 4.35% and, as usual, many lenders - including the four major banks - have responded quickly by raising mortgage rates.
The reaction has been more muted on the term deposit front though - at least, so far.
Rachel Wastell, finance expert at comparison website Mozo, notes that only a handful of banks have adjusted their term deposit rates in the last few days.
"There's been some new term deposit rates emerging, but in terms of recent movements there's only been a few since the RBA hiked the cash rate.
"ING is one bank that deserves a mention when it comes to passing on the hike to term deposit holders, increasing their one-year rate by 0.30% and taking them to the top of the table as the new rate leader in this category.
"Community First, Alex Bank, Goldfields and Firstmac have also moved, adding between 0.25-0.45% to their one-year term deposit rates."
Which banks are offering the highest term deposit rates?
Even with little upward movement in the past week, the 12 previous cash rate hikes since May 2022 have ensured that term deposit rates have risen to some of their highest levels in years.
As the tables below show, savers looking to lock their money away for a short, or longer stint, won't find it difficult to earn an interest rate of around 5.00% at present.
Is it time to lock in while the going's good?
For savers who are on the fence about stashing some cash away, one question they're likely pondering is whether term deposit rates will keep ticking up, or whether they're about as high as they're going to get for the time being.
There's no simple answer to that. Some experts believe that the cash rate has peaked at 4.35%, but that was also the view held by many after the cash rate hit 4.10%. As Wastell notes, if that thinking is correct, term deposit rates are unlikely to rise much further.
"With the cash rate now close to its expected peak, it's unlikely rates will go much higher. The big four bank consensus at the moment is that 4.35% is the peak, however, there is a chance the RBA could hike again in early 2024. If that is the case, we could see term deposit rates pushed a little higher."
The relative parity between shorter and longer term deposit rates (which can be seen in the tables above) does suggest that many banks are pricing in lower rates in future years.
Ultimately though, those eying off a longer term will still need to weigh up the benefits of a relatively high rate against any drawbacks of not having access to that money.
"Locking away your savings for a five year period could provide a shield from decreasing rates if the RBA begins their cash rate cutting cycle late 2024," says Wastell.
"However, savers should consider how confident they are that they don't need those savings, as early withdrawals can come with hefty rate penalties."
Four tips for keeping money in a term deposit
Shop around for a decent rate
"Do your research, as there are typically only a handful of banks that are offering high term deposit rates," says Wastell. "And look beyond the big banks, as they almost never have the best rates."
Choose the interest payment frequency carefully
Banks tend to give term deposit customers a choice when it comes to how often their interest is paid e.g. monthly, annually or at maturity. More regular interest payments often come with the downside of a lower rate though, so it's worth using a term deposit calculator to assess the difference.
Be aware of early withdrawal penalties
"Check the interest rate that will apply to early withdrawals, as these can vary greatly," Wastell says. "Sometimes term deposit rates can be dropped as low as 0.10%, which means you could end up losing entire percentage points of interest you could have earned if you didn't withdraw early."
Consider the Financial Claims Scheme cap
One benefit of keeping money in a savings account or term deposit is that it is covered under the government's Financial Claims Scheme. However, there is a limit of $250,000 per account holder, per authorised deposit-taking institution, so savers with larger balances may want to consider spreading it across multiple banks.
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