Term deposits causing interest rate review

Intense competition in the term deposit market is forcing banks to look to ease funding pressure by increasing interest rates on home loans, Commonwealth Bank has claimed.

Speaking to the Herald Sun, Brian Fitzgerald said that headline rates in the term deposit market were increasing funding pressure considerably, with the acquisition of BankWest exacerbating problems as the franchise offers some of the best term deposits on the market.

Suncorp and Bendigo have also been putting some fiercely competitive term deposits on the market, forcing the rest of the pack to follow suit.

"Our long-term cost of funding our home loans is continuing to increase. There is also competitive pressure coming from the term deposit market which is adding to our costs," Fitzgerald conceded.

Before it announced the ten basis point increase in its variable home loans, Commonwealth offered a market-leading rate of 5.64 per cent.

When the new rate comes into effect on June 15th, the bank will be neck-and-neck with National Australia Bank, which also offers 5.74 per cent variable home loans.

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