Term Deposits That Require 31 Days’ Notice Of Withdrawal
A far back as November 2011, ASIC published a consultation document called ‘Term deposits that are only breakable on 31 days’ notice’. In this document ASIC said that, ‘The Basel III liquidity standards have the goal of promoting a more resilient banking sector, including improving the sector’s ability to absorb shocks arising from financial and economic stress. Term deposits that are only breakable on 31 days’ notice would achieve recognition of the 31-day term under the Basel III liquidity standards.’
ASIC goes on to say that, ‘The long-standing practice among ADIs is to allow term deposits to be breakable at the depositor’s discretion (whether or not subject to some loss of interest). If this practice is maintained, ADIs to whom the LCR requirements apply will need to hold a larger liquidity buffer under the Basel III liquidity standards. This is likely to result in a reduction of term deposit rates offered by ADIs due to the need to recoup the associated costs of holding a larger liquidity buffer. To meet the Basel III liquidity standards, a depositor must have no legal right to withdraw deposits within the 30-day horizon of the LCR (subject to the hardship exemption). Therefore, term deposits that require a minimum notice period of 31 days before being able to be withdrawn by the depositor will achieve recognition of their term for LCR purposes.’
Readers of YieldReport may have noticed recently that banks have been running advertisements in the mainstream press about their new terms and conditions for term deposits. The precise terms and conditions will vary between the various banks, but a recent advertisement from Macquarie Bank in fairly typical and states that from 19 January 2015, customers will need to provide 31 days’ notice to access the funds in their term deposits before the maturity date. This applies to TDs invested for terms greater than 30 days and that are opened or reinvested from 31 October 2014.
What are the big four banks doing about this? Westpac says that from 1 August, “For Term Deposits opened or renewed on or after 1 August 2014, from 1 January 2015 you must usually give us 31 days’ notice to close your account during a term.”
NAB says, “When you invest in a term deposit, you are investing a fixed amount for a fixed term at a fixed rate. During the first 2 years of the term deposit, any withdrawal of funds from the term deposit prior to its maturity will be subject to NAB’s discretion. NAB may use this discretion to, for example, require you to provide advance notice or to meet other conditions before the withdrawal can be made. NAB will always exercise its discretion reasonably. If you are considering requesting a prepayment, you should contact NAB to find out whether any notice periods or other conditions apply at that time.”
CBA does not appear to have update the terms and conditions on its TDs since March 2014, and still says, “If you have a term deposit with a term of 2 years or less, you may apply to the bank to request the withdrawal of all or part of your funds prior to the maturity date. The bank may, in its discretion, approve a request for early withdrawal, in which case a prepayment adjustment and $30.00 prepayment administration fee will apply. If you have a term deposit with a term of more than
2 years, you may withdraw part or all of your funds prior to the maturity date subject to payment of a prepayment adjustment and $30.00 prepayment administration fee.”
ANZ also does not appear to have updated its terms and conditions on TDs yet and states, “If you wish to withdraw all or part of your ANZ term deposit before its maturity date, you must make this request to ANZ in writing. ANZ will be entitled to reduce the interest rate payable on the ANZ term deposit when there is an early withdrawal.”
Some smaller Australian banks have already made the change. Bank of Queensland states, “From 1 January 2015, we will be making changes to the Terms and Conditions of your Premier Investment Account. The most important changes for you are: your renewal grace period will be amended from 5 calendar days to 7 calendar days; you must provide 31 days’ notice for early withdrawal or termination before your fixed term deposit account matures; and your existing fixed term deposit account will automatically convert to a 31 days’ notice period account.”
St George Bank says, “For accounts opened and renewed on or after 1 August 2014, from 1 January 2015, you must provide us with at least 31 days’ notice to close your Account prior to maturity, unless hardship applies as defined by St George. If you have less than 31 days remaining of your term, the earliest you can access funds is after maturity, unless hardship applies as defined by St George.”
Readers holding term deposits are advised to check with their bank to establish where they stand on the 31 days’ notice ruling.
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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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