Savers to benefit as big banks face funding crisis
Term deposit investors, as well as savings account holders, are set to reap the benefits of higher interest rates as banks and credit unions embark on a new competition war for deposits. In recent years savers have had to deal with historically low rates of return. The Reserve Bank of Australia has cut official interest rates to historic low levels. Those rates have flowed through to low average rates on savings accounts and term deposits.
Now, new rules for banks mean they need to find more deposits to fund their lending operations, and that means rates will have to rise.
What is changing in the deposit market?
A new report from Macquarie Securities says the fifteen biggest banks in Australia need between $20 billion and $34 billion in extra funding to meet stricter funding rules due to be introduced in 2018. Macquarie Securities says savers can expect a surge in competition for deposits over the next 18 months as banks work to close the funding gap. The new funding rules favour funding from stable sources. That means term deposits will be rated the most valuable deposits for banks to hold, followed by savings accounts. Banks are expected to rely less on wholesale funding markets and much more on domestic Australian depositors.
Where are savings account and term deposit rates heading now?
In early July 2016, Macquarie Securities reported that, following the most recent RBA rate cut of 0.25 percentage points, banks cut savings account rates by an average of 0.15 to 0.25 percentage points.
Term deposit interest rates remained largely unchanged despite the RBA rate cut. Macquarie reported that this is “the first indication for some time that deposit competition is beginning to intensify.”
Macquarie also stated that: “We expect deposit competition to increase.”
Which banks are set to raise their savings rates?
With pressure building on the fifteen largest banking institutions in Australia to find at least $20 billion within the next 18 months, competition is expected to flow through the entire industry. Currently Macquarie Securities reports that currently Westpac seems to have the largest gap, at around $7 billion, followed by Commonwealth Bank at $6 billion. ANZ Bank's funding gap is about $2 billion and National Australia Bank has no gap currently.
How can I grab a better rate on my savings?
The best way to get a higher rate on your savings is to stay up to date with the changing rates in the market. Check out the current savings account offerings on InfoChoice and the current term deposit deals as well.
Term deposit investors should split their money into a number of term deposits of varying terms. Don’t lock all your money away in a long term deposit. Term deposit rates change constantly and you need to be able to grab the best deal at any particular time.