As readers of YieldReport will know, many of Australia’s banks have started to promote their cash accounts rather than their term deposits because, from the bank’s point of view, cash accounts are considered to be more ‘sticky’ kinds of deposits as far as Basel III capital adequacy goes.
One of the main differences between cash accounts and term deposits is that cash accounts lock up an investor’s money for 31 days with no chance of withdrawal. These accounts often come with special terms and conditions too such as minimum and maximum balances, the requirement that at least one deposit of a certain size is made each month and the requirement that each end of month balance is higher than that of the preceding month.
The upside is that investors can earn bonus interest when they grow their balance by a certain amount, often $200, before the end of the calendar month and make no more than one withdrawal in that month.
Often these accounts will have a maximum balance on which bonus interest can be earned, such as $100,000, but often investors will be allowed to open and operate two cash accounts at the same time.
Often these accounts have no monthly account fees associated with them but they are not transaction accounts and so investors cannot set up automatic transfers, direct debits or automatic funds transfers out of the account.
As 2014 has worn on, YieldReport readers will have noticed that there has been a general trend towards banks reducing their term deposit rates. The same trend is evident in cash accounts, as can been seen from the chart to the right. The long grind lower in rates seems set to continue.
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Paul McNamara is an editor and journalist with over 20 years’ experience. His career includes spells with the Financial Times, Euromoney, BRW Media, Asia-Inc and Banker Middle East. At present he is editor of YieldReport. YieldReport is a digital newsletter that carries comprehensive pricing and commentary on Australian interest rate securities in a monthly and weekly report. Each issue covers bank bills, cash accounts, term deposits, government bonds, semi-government and corporate bonds, hybrids, ETFs, managed funds and more. Click here for a free trial subscription. |
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