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Poof! Term deposit rates are disappearing

The Reserve Bank of Australia has not changed the cash rate since March when it cut twice, but banks and other deposit takers have been active over the past couple of months trimming at-call and term deposit rates. Investors need to keep on top of how this is impacting their cash holdings.

Recent cuts by the big banks have put them well off the pace, while the neobanks, which led the deposit market with the best rates early in the year, have not been able to maintain their momentum.

Comparison site Mozo says at-call rates were “hammered” in April when every rate change was down. It was not much better in the term deposit market, with only a handful of rate increases among a large number of reductions.

The trend has continued in the first half of May. Canstar reported that in the first week of the month there were 167 changes to term deposit rates – 164 cuts and three increases.

The range of rates on offer is wide, indicating that investors cannot assume they are getting a good rate.

In the term deposit (TD) market, the average rate for 12 months is 1.32%, while the top rate is 1.95% and the lowest rate is 0.45%. The top rate is being offered by Firstmac.

Some of the cuts have been deep. Last month, Bank Australia cut TD rates by up to 0.55% and Suncorp Bank by up to 0.45%.

Investors relying on the neobanks to maintain their market-leading rates have been disappointed.

Judo Bank, which leads the TD market for terms from two to four years, cut rates for terms up to 12 months last month. The rate leader for terms of six, nine and 12 months is now Rabobank, offering 2% for all three terms.

86 400 cut the bonus rate on its Save account last month, dropping the total rate available from 2% to 1.85%.

Xinja has withdrawn its savings account from sale and volt is still in beta offering 1.65% a small group of customers.

In the at-call market, the highest rate on offer is a four-month introductory rate of 2.65% being offered by Macquarie Bank. The rate drops to 1.35% after the intro period.

The highest ongoing bonus rate is 2%, which both Bank of Queensland and MyState bank are offering to savers who make regular deposits and/or transactions.

Volt is offering the highest unconditional savings rate of 1.65%.

Among the big banks, Westpac cut the interest rates on a number of its savings products early in May, bringing its rates into line with its big bank rivals, which had cut their savings rates in April.

The five-month introductory rate on its eSaver account was cut 0.25% to 1.05%. The base rate is unchanged at 0.05%.

The bonus rate on its Life account was cut 0.25% to 0.65%. The base rate is unchanged at 0.40%.

The base rate on its Bump Savings account was cut 0.15% to 0.70%. The bonus rate is unchanged at 0.07%.

Westpac subsidiaries Bank of Melbourne, St George and BankSA made similar changes to their savings accounts.

Canstar says that following Westpac’s changes, Commonwealth Bank, NAB and Westpac are all offering savings accounts with introductory rates of 1.05%. ANZ’s Online Saver offers an intro rate of 0.95% for three months.

The big banks’ best TD rates include NAB offering 1.35% for 12 months, ANZ offering 1.15% for eight months, CBA offering 1.1% for eight months and Westpac offering 1.1% for 12 months.

This article was written by Annabelle Dickson, a journalist for The Inside Network.

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