Rates on term deposits and fixed rate home loans have been slashed over the past month or so as markets remain unconvinced by Michele Bullock's assertions that the cash rate will not be cut in 2024.
However, as Warren Hogan, Chief Economic advisor at Judo Bank told the Savings Tip Jar podcast, this does not necessarily reflect the views of the banks.
"The reason you're seeing all these fixed rates coming down is because the three year government bond yield...has fallen pretty dramatically," he explained.
"The banks will just make that [lower] rate to their customers and automatically hedge that interest rate risk in the market.
"The bank's not taking any view on interest rates there, but the market is...all the professional players, they're the ones who think an RBA rate cuts imminent, the bank itself is just going into that market and taking advantage of the price."
Basically, lower medium term bond yields implies lower cost of borrowing for lending institutions.
This generally translates to lower term deposit rates - if banks can borrow at say, 5% p.a., it doesn't make much sense from their point of view to be offering customers a term deposit rate above that.
The TL;DR (too long, didn't read) version for TD fans is that it will probably take a substantial shift in market expectations for rates to start to climb back up again.
Unfortunately for now, it seems like the glory days are behind us.
Here is this week's round of rate cuts, including BOQ, Bendigo, Macquarie and Suncorp.
Bendigo cuts rates up to 70 bps
| Term length | Deposit size | Payment frequency | Interest rate (Change) |
|---|---|---|---|
| One year | $5,000-$5,000,000 | End of term | 4.65% p.a. (-0.10) |
| Two years | $5,000-$5,000,000 | End of term | 3.30% p.a. (-0.70) |
| Three years | $5,000-$5,000,000 | Annually | 3.30% p.a. (-0.70) |
We don't hear too much out of Bendigo as far as TD rates go - it seems to have mostly adopted a set and forget approach over the past 18 months or so.
This week though, it did take action, with cuts to terms one year and longer.
That 4.65% p.a. rate on one year terms is still the highest the bank has on offer.
BOQ cuts Premier Investment rates up to 90 bps
| Term length | Deposit size | Payment frequency | Interest rate (Change) |
|---|---|---|---|
| Six months | $5,000-$250,000 | End of term | 4.90% p.a. (-0.10) |
| Nine months | $5,000-$250,000 | End of term | 4.70% p.a. (-0.10) |
| One year | $5,000-$250,000 | End of term | 4.70% p.a. (-0.10) |
| Two years | $5,000-$250,000 | Annually | 3.30% p.a. (-0.90) |
After this week's rate cuts, BOQ is the latest outfit to officially drop all TDs below the 5% p.a. mark.
It remains level with Suncorp at 4.90% p.a. for six month terms, 15 basis points from ING which has the highest rate among the top ten banks by the size of the customer deposit book.
That's still 5 basis points back from Australian Unity Bank which currently sits at 5.10% p.a. for six month terms.
Macquarie cuts rates up to 20 bps
| Term length | Deposit size | Payment frequency | Interest rate (Change) |
|---|---|---|---|
| One year | $5,000-$1,000,000 | Annually | 4.70% p.a. (-0.15) |
| Two years | $5,000-$1,000,000 | Annually | 3.90% p.a. (-0.20) |
| Three/Four/Five years | $5,000-$1,000,000 | Annually | 3.80% p.a. (-0.20) |
Sticking to the general pattern, Macquarie cut longer term TD rates fairly substantially this week, reflecting the bond yield curve.
Macquarie, behind only the big four in terms of home loan lending, was one of the major players that also cut fixed rate home loans this month.
Suncorp varied rates up to 165 bps
| Term length | Deposit size | Payment frequency | Interest rate (Change) |
|---|---|---|---|
| Three months | $5,000-$99,999 | End of term | 4.55% p.a. (+0.15) |
| Four months | $5,000-$99,999 | End of term | 4.65% p.a. (+1.65) |
| Six months | $5,000-$1,999,999 | End of term | 4.90% p.a. (+0.15) |
| One year | $5,000-$99,999 | End of term | 4.40% p.a. (-0.45) |
While Suncorp still cut rates on TDs nine months and longer, it went against the grain by offsetting these lower returns with boosts to six month and lower rates.
Four month rates were particularly noteworthy - a 1.65% p.a. increase taking the top rate to 4.75% p.a., although this is for deposits above $1,000,000.
Bank of Sydney cuts 5 bps
| Term length | Deposit size | Payment frequency | Interest rate (Change) |
|---|---|---|---|
| Six months | $1,000-$1,000,000 | End of term | 5.05% p.a. (-0.05) |
Even after this week's cut, Bank of Sydney continues to offer one of the premier rates for six month terms, level with ING.
Other movers
- ME Bank cut rates up to 10 bps
- Horizon Bank varied rates up to 80 bps
- Credit Union SA cut up to 50 bps
- Beyond Bank cut up to 20 bps
- Great Southern Bank cut up to 20 bps
Business TD rates join the plunge
While personal term deposit rates have been on the slide for the past month, term deposit rates for business accounts have remained relatively unscathed - until Friday.
CommBank and ANZ have both announced significant cuts to their business term deposit rates.
CBA was the first to move, announcing interest rate downgrades to a large swathe of its business term deposit accounts of up to 40bps.
However, the rate for its nine-month terms will jump to 4.5% p.a. for amounts between $5,000 and $1,999,999, with interest paid either annually, semi-annually, or monthly.
ANZ followed soon after, taking up to 50 bps off its Business Notice term deposit rates for amounts between $5,000 and $99,999.99 invested for six- and 12-month terms.
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Want to earn a fixed interest rate on your cash? The table below features term deposits with some of the highest interest rates on the market for a six-month term.
Picture from Suncorp
Brooke Cooper
