Term deposit rates tipped to remain strong

Australian term deposit returns will remain strong in 2011 given that interest rates are tipped to rise, an expert has said.

Don Stammer, non-executive chairman at investment management firm Praemium, suggested that the Reserve Bank's (RBA) decision to lift the official cash rate to 4.75 per cent in November last year had been "pre-emptive" given that prospective inflation was within the target range and consumer spending "was a little soft".

However, writing for InvestorDaily, he predicted that the RBA will become increasingly concerned about the outlook for inflation over the course of this year as wage pressures build up and productivity growth nears zero.

This could see the cash rate raised progressively to 5.5-5.75 per cent, he said, hitting borrowers with higher interest rate charges but also benefiting long-term savers and investors such as those looking to compare term deposits.

"Our yields could move higher on the back of rising US bond yields," said Mr Stammer.

"And Australians are likely to continue enjoying attractive returns on at-call money and term deposits."

This article is brought to you by Mozo – Helping you compare term depositsADNFCR-1761-ID-800351566-ADNFCR