Mozo Money Moves: Big Four TD rates follow cash rate forecasts

This week’s Mozo Money Moves dives into how term deposit rates are shifting and the latest unemployment data. With just over two weeks left until the Reserve Bank of Australia (RBA) meets to decide the direction of the cash rate, the new data from the Australian Bureau of Statistics (ABS) has reaffirmed Mozo’s stance that a 14th rate hike is unlikely.

The Mozo team have also been closely monitoring 12 month term deposit rate moves by the Big Four banks over the past year, which are following shifting cash rate forecasts.

Let’s get into it.

RBA Moves

The latest unemployment data for June , released on Thursday by the ABS, revealed a slight uptick in the seasonally adjusted unemployment rate from 4.0% in May to 4.1%. 

However, despite minor fluctuations to the employment rate in February, March, and May, unemployment has held steady, coming in at 4.1% in January, April, and June. As Mozo expert Peter Marshall recently pointed out in this column, there is a risk commentators taking “single data sets as indicators of another hike are 'cherry-picking the data'  and ignoring the various other factors at play.”

While the tight labour market will probably cause the RBA to consider another rate hike at the August meeting, the RBA’s goal is to achieve maximum employment while ensuring stable inflation. Therefore, they will likely also look at other employment indicators including the fall in job ads over the last 12 months. 

“The data shows a slight month-on-month rise, but if you look back at the year’s unemployment data, the rate has held steady at 4.1%," says Rachel Wastell, Mozo's personal finance expert.

“Given the data, the RBA probably won't jump at this latest figure. However, if there is another rate hike on the cards, it could be 0.10% or 0.25%, based on the historical size of RBA hikes.”

Here’s how potential rate hikes could affect monthly repayments, based on the RBA Lenders' Interest Rates data for outstanding owner-occupied home loans:

If the RBA hikes to 4.45%

If the RBA hikes to 4.60%

“Homeowners should brace for the possibility of a rate hike, and attempt to save a little extra each month as a buffer, in case their repayments do end up rising,” stresses Wastell.

“Even in a hold environment there’s always a chance of rate moves, especially as we are still seeing some lenders shifting rates despite an RBA pause.”

Term Deposit Moves

As we await the next RBA cash rate decision, there have also been some telling shifts in the Big Four bank cash rate forecasts, with NAB and ANZ both now predicting the first rate cut not to come until 2025 (originally forecast for the September quarter 2024). In line with these shifting forecasts, some of the Big Four banks have been shifting their 12 month term deposit rates.

On Monday, the Commonwealth Bank increased their 12 month term deposit rate by 5 bps to 4.60%p.a., and moved the 11 month special to a 12 month special at the same rate of 4.90%p.a for balances between $5,000 and $1,999,999. These moves follow on from the adjustments made in June, where the Commonwealth Bank shifted rates for 11-18 month terms twice within a month, initially reducing and then reverting to previous levels.

The number of moves in this space does seem interesting from the major bank, and as Peter Marshall posited earlier this month, “Why would they be shifting rates so frequently for term deposits when they have yet to move on fixed home loan rates?” However, this does match the trend that’s occurred over the past year for the Commonwealth Bank's 12 month special term deposit rates, which have fluctuated between 4.80% and 5.05% in line with forecasts of the RBA's cash rate direction.

But it's not just Commbank making moves in the Big Four term deposit space. On Tuesday, NAB increased its 12 month term deposit rate by 10 bps from 4.80%p.a. to 4.90% p.a. and over the past year, NAB's 12-month term deposit rates have shifted in a similar pattern to Commbank (see below graph). 

For most of 2024, NAB's 12-month term deposit rate remained steady at 4.70%p.a., and Commbank at 4.75%p.a. but the recent hikes in June and July reflect their updated forecasts that the RBA will not cut rates until 2025.

Despite no movement from ANZ or Westpac this week, these big four banks have also been making changes over the past year as rate forecasts shift. 

ANZ increased their 12-month term deposit rate to 5.05% p.a. in November 2023, only to drop it to 4.60% p.a. by June 2024. Interestingly, despite shifting their cash rate forecast in June they have yet to increase the 12 month rate.

Westpac’s 12 month rate was following a similar pattern, maintaining a rate of 4.75% p.a. for much of 2023, however they lowered it to 4.25% p.a. in the first half of 2024. Though Westpac’s 12 month rate is much lower than the other Big Four banks, and fluctuations have seemingly stalled, this is due to the banks shift in focus of where it has placed its special rate. 

Westpac’s 11 month term deposit special rate is currently the bank’s leading rate, offering savers 4.80%p.a. if they open or renew the term deposit online, with a balance of $5,000 to $5,000,000.

Home loan Moves

This week, on the Mozo database, four regional lenders cut their variable home loan rates by 10 to 20 bps, namely Auswide Bank, People’s Choice and Newcastle Permanent. 

“The fact that banks are still moving rates shows that it pays to keep an eye on your rate even if the RBA isn’t moving,” says Wastell.

"Despite the average variable rate on the Mozo database sitting at 6.80%, there are still a number of variable rate home loans boasting rates starting with 5.

“If you're a mortgage holder paying 7% or above there is scope to save tens of thousands of dollars over a 25 year loan term by switching to a lower rate.”

“For those borrowers who can meet serviceability requirements to refinance but have yet to switch, now could be a good time to do so, especially if your lender has recently raised your rate."

Top Variable Rate Home Loans

Home Loan Insights

• Every lender has different ways of calculating borrowing power, and some might be more risk-averse than others, so how does it work?
• Before you decide to pay off your mortgage early, it's important to realise some potential costs and penalties can be involved, but what are they?
• If you have a Self-Managed Super Fund (SMSF), you may be able to use your retirement savings as a deposit for an investment property. 

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As a part of Mozo’s commitment to making your money count for more, each month we “roundup” the rate changes, key banking trends and money moves in the Australian personal finance market. 

If you’d like to see the analysis in full once it’s released, you can subscribe to receive the Mozo Banking RoundUp here.

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