Term Deposit rate war declared

Term Deposit rate war declared

Westpac has just launched an astonishing 1 year term deposit rate this morning: 6.80%.  They’re not even waiting for the RBA announcement this afternoon.

A 1 year rate of 6.8% is an enormous rate, bigger than any 1 year or even 2 year term deposit rate in the market.  Yesterday the best 1 year rate around was an online special from Rural Bank of 6.25%, and the best the Big 4 offered was 5.5%.  You couldn’t get any more than 6.5% even if you locked your money away for 2 years!

It’s true that term deposit rates have been on the rise for a while.  Even before today’s announcement, the average 1 year TD rate was 1% higher than 12 months ago, even though the Reserve Bank rate is still much lower.  But up to now, it’s been the smaller players leading the charge on Term Deposits rates: yesterday’s leading 1 year deposit rates came from Rural Bank, AMP, Bank of Queensland and Bendigo.  That’s primarily because they’ve struggled to fund their lending compared to the Big Banks, and therefore need to attract more deposits.  So the fact that today’s aggressive move has come from Westpac is a real eye-opener.

We’ve been blogging here at Mozo for a while about the emerging savings account rate wars.  Now the conflict is spreading.  The other players will need to sharpen up their own term deposit rates in order to keep money coming in.  This is a great time to be saving!

But we have to wonder, at what cost to loan rates?  Last month, Commbank CEO Ralph Norris was blaming higher term deposit rates as one of the things driving up home loan funding costs, and one of the reasons why he wouldn’t rule out increasing variable home loan rates by more than the RBA increases.  This certainly isn’t going to help homeowners!

Compare term deposits with mozo.com.au

Term Deposit rate war declared was last modified: June 26, 2015 by Andrew Duncanson

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  1. I don’t think the deposit war is “emerging”

    It started to occur in 2008 as the meltdown occurred and there was a flight to quality, with major lenders and smaller regionals battling for more stable deposit based funding.

    The only difference is at the time the central bank was cutting, but it was extremely competitive even back then.

    That has continued as Australian interest rates have risen, which is why you probably perceive it to be new, because the differences are now more acute.

    By no means is it emerging.

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  2. Andrew Duncanson

    Thanks for your comment, sharatq.

    You’re right, there was quite a bit of competition for deposits back in 2008 as well. But during 2009 there was a definite shift in emphasis from deposits to lending – and I’m measuring that by the volume of changes banks were making to their interest rates and their eagerness to sign up new accounts. And in late 2009 we saw the activity shift back to deposits again.

    The Westpac rate in December was the first really big statement from one of the Big 4 in this phase of the market. But of course, it was also a bit of a smokescreen for their big home loan rate increase later that same day!

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  3. Last year St George bank advertised six months interest free on balance transfers. I transfered my credit card balance fron Commonwelth Bank.
    last month a new charge started to appear on my St George credit card statement, along with ” interest on purchases” and ” edinterest on cash advances ” appear ” interest on special.
    Noone at St George can explain it.
    My guess is it is interest being charged for the non interest period.

    Reply

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