Term deposit rates in Australia have been grinding lower all of this year and with rate cuts now being priced back into the market from June 2015 to early 2016, TD rates are coming under further pressure. Indeed, in recent weeks Alliance Bernstein said, “We could easily see a couple of rate cuts” and did not rule out a cash rate of around 2.0% by the end of 2015, from the current 2.5%. While no one has a crystal ball, the market believes that an imminent rate hike is unlikely but the likelihood is that rates will go down rather than up.
The chart below shows the trend in the best TD rates from the big four banks over the past 12 months.
There has been no change at short end of the curve but all terms over 60days show substantial falls and give some sense of the challenge that investors face in earning a decent return on their money. With inflation in Australia running at 2.30 per cent per year, and with banks introducing a minimum of 31 days’ notice of withdrawal from TDs (see YieldReport Insight, 03 Nov – 07 Nov 2014 edition) it is unlikely that the appeal of TDs will pick up again until the cash rate looks set to rise.
The best rate for a 5y TD at present comes from Bank of Baroda Australia at 4.25 per cent, a rate that has remained constant over the past 12 months. Data from YieldReport shows, however, that in July 2013 the bank was offering a rate of 5.00 per cent for a 5y TD, just a smidge behind the top rate of 5.01 per cent offered by Investec Bank Australia. Some investors may be wishing they locked those rates in at the time.
 |
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. |
|
