The great term deposit shake up

When I first started writing for Mozo in 2011, term deposits were all the rage with interest rates sitting at as high as 6%. But as the years have passed and the RBA’s official cash rate has continued its downhill slide to record lows, term deposit rates have quickly tumbled to near the 2% mark.

But boy have things changed in the past few weeks, as the banks have made the surprising move to go against the RBA’s latest interest rate drop and hike up term deposit rates instead. This has resulted in the term deposit market getting a shakeup, putting these accounts back on the table as a competitive, low risk strategy for savers.

Let’s take a look at how the market has changed:

The big banks

All of the big 4 - CommBank, Westpac, ANZ and NAB - have announced they will hike up their term deposit rates by as much as 0.85%. As the table below shows if you’re looking to stash away $20k that rate difference can result in hundreds extra in your pocket.

BankOld rateNew rateDifference on a $20,000 balance
CommBank1 year: 2.45%
2 years: 2.60% 
3 years: 2.70%
1 year: 3%
2 years: 3.10%
3 years: 3.20%
Westpac1 year: 2.45%
2 years: 2.65%
3 years: 2.65%
1 year: 3%
2 years: 3.10%
3 years: 3.20%
ANZ1 year: 2.40%
2 years: 2.45%
1 year: 3%
2 years: 3.20%
NAB8 months: 2.05%
8 months: 2.90%$114

*Scenarios assume interest is paid at maturity

What about smaller providers?

Of course, the big banks weren’t the only providers to give term deposit rates a bit of a shakeup, as our database shows 21 other providers have also hiked up rates attached to term deposits. 

This brings the highest term deposit rate for one year to 3.11% offered by Gateway Credit Union (increased by 11 basis points), for two years 3.20% with ANZ (increased by 75 basis points) and People's Choice Credit Union (increased by 20 basis points) and three years 3.25% from the Bank of Queensland (increased by 60 basis points).

Will rates continue their upward climb?

It’s hard to say whether banks will increase term deposit rates again in the near future, especially with predictions the official cash rate will come down even further to 1%. Some economists are tipping that banks may even reverse these term deposit rate increases in the next few months, so locking in now could be a good move if that happens. However, this is all speculation and only time will tell what the banks do. So watch this space...

3 must read term deposit tips

If you think you might take advantage of this sudden term deposit rate hike, then keep these tips in mind before you lock away your cash:

1. Consider your term carefully: While term deposits can be a great low risk investment, as the rate is fixed and you’ll be protected against any rate drops in the market, they aren’t very flexible when it comes to early withdrawals. That’s why it’s important to have a good think about the amount of time you want to open the term deposit for, so that you don’t find yourself dipping into that cash early and being charged a hefty penalty.

2. Have an emergency fund in place: A smart strategy for avoiding early withdrawals is having a separate account for emergencies, like a high interest savings account, that is easily accessible. So if your car breaks down or you receive an unexpectedly high bill, you’ll have the cash at hand and won’t need to withdraw your term deposit funds early.

3. Check your rate at maturity: If you are not planning on withdrawing your cash when the term deposit matures (e.g the term comes to an end) make sure you check the rate that applies to that account is still competitive once it rolls over. If it’s not, then make sure you take the time to look for a new term deposit, by comparing deals online, so you can move over your cash before it is locked in for another term.