Big four term deposit rates continue downward spiral

Australian savers hardly need reminding of the steady fall in term deposit and savings account rates in recent years - a trend accelerated by five Reserve Bank cuts to the official cash rate in 12 months.  

But one set of term deposit interest rates appears to have fallen even further relative to the rest of the market: big bank rates. 

Despite releasing some competitive terms deposit offers back in March as part of their initial response to the COVID-19 outbreak, those sharper rates from the major banks have all but evaporated. 

In fact, ANZ, the Commonwealth Bank and Westpac have all made cuts to 3-month, 6-month, 1-year and 5-year term deposit rates in the last two months, while NAB has made two cuts and two increases to those key terms. 

“Unfortunately for savers, there’s just very little competition for deposit funds right now,” said Mozo Banking Expert, Peter Marshall. 

“Deposits are a cost to the banks and if they’re not expecting to need to raise funds to support expanding their lending portfolios then deposits are of little use to them.” 

So just how far have rates fallen? 

Let’s take a look by comparing major bank offers against the Mozo database average across four key terms, both 12 months ago and at present. 

Major banks vs Mozo average (May 20, 2019)

Major banks vs Mozo average (May 20, 2020)

As the two tables demonstrate, not only has there been a considerable overall interest rate drop in these key terms over the past 12 months, the major banks have largely reduced their rates by an even greater amount compared to Mozo database average. 

For example, in May 2019 the average big bank interest rate for a 3-month term was 18 basis points below the Mozo average, whereas it now sits a whopping 51 basis points lower. The same trend is true for 6-month terms. 

And though the spread on 1-year and 5-year terms has tightened slightly, it’s still worth noting that this is against the average rate in the Mozo database, with plenty of providers offering even higher rates. 

As Marshall highlights, savers on the hunt for a competitive term deposit rate may be better off looking for options outside of the big four banks. 

“The big banks don’t compete on price. They often rely on customer inertia, the familiarity of their names and the perceived additional safety that big names bring.”

“Across all of their products they are not price leaders. So if you want a sharp price - whether it’s for a loan or deposit - you need to look outside of the big guys.”

On that issue of security, Marshall also noted that - whether big or small - all authorised deposit-taking institutions that provide term deposits in Australia are held to the same standards by regulators and they are all covered under the Financial Claims Scheme.

“If your deposit is below the threshold for the government deposit guarantee of $250,000 then there is no effective difference at all when it comes to the security of your money,” he said. 

“That guarantee applies to all authorised deposit-taking institutions no matter what their size is. They all have to follow the rules set out by APRA that mean that the government is comfortable to give them that guarantee.”  

RELATED: UBank lifts key term deposit rate, joins Judo Bank and Rabobank in making wider cuts

Ready to secure a better rate for your savings? Check out some of the hot term deposit rates in the table below, or head over to the Mozo term deposit comparison table for the latest rates from even more banks.