Term deposits: What does your commitment earn you?

Interest rates haven’t been all that rosey for savers in 2020. Whether you store your cash in a term deposit or savings account, economic uncertainty has led to consistent cuts across the board. 

The traditional approach to this kind of instability would be to bet on a term deposit. This option provides a fixed rate for as long as you set the term, helping you avoid rate reductions (and increases, on the negative flipside).

The catch is you’ve got to get while the gettin's good. Right now, what you’ll get for an average one-year term deposit is 0.79% interest rate, according to Mozo’s database. Compared to 2014’s one-year term average of 3.41%, that interest rate doesn’t feel quite so good.

Unfortunately, things really don’t pick up if you’re willing to stick it out for a longer term. As you can see in the graph below, savers were once upon a time incentivised with a higher rate to keep their cash locked up for longer periods.

This is known as the ‘yield curve’ and while it isn’t completely flat, it’s certainly no longer a mountain peak at the end of the x-axis. The average in Mozo’s database for a five-year term is now 0.84%, which is only five basis points up from the one-year rate.

Security in uncertain times

So, what should your game plan be if you didn’t organise a top term deposit rate years ago? As always, we implore you to shop around. 

While the averages aren’t great, you can still get a solid fixed rate of up to 1.23% for one year or 1.35% for a five-year term (both with a Judo Bank Term Deposit). If you’re looking for a shorter time frame to meet a savings goal, Bank Vic is offering rates of 1.15% between one and eight-month terms and a bump up to 1.25% on its nine-month option.

While these rates aren’t as high as some of the leading savings rates right now, they do have the benefit of being fixed. 

If the Reserve Bank of Australia (RBA) cuts the cash rate in November (as many analysts are forecasting) and banks follow with corresponding rate reductions for deposit accounts, your nest egg will keep on growing at the same rate.

If you’re dipping your toes into term deposits for the first time, start research using our term deposit comparison tool or check out the options below.