Term deposits have arguably been the most hotly-contested area in personal finance, with each week bringing a new top-dog vying for deposit dollars.
This week, Macquarie Bank edged out the likes of AMP and Judo to re-take the crown in the one-year term deposit space.
Its top one-year rate is now 3.80% p.a. with interest paid at maturity and a $5,000 minimum deposit.
While this represents an increase of just 5 basis points, the tit-for-tat race means one-year rates are edging ever-closer to the 4.00% p.a. mark.
Only a few months ago, a 4.00% p.a. rate was considered 'good' in the five-year space, let alone the one-year space.
Savings account rates continue to trend upwards as well, with Bank of Queensland's 4.00% p.a. announcement last week proving popular.
Top term deposit rates
|Term||Bank||Interest Rate||Min Deposit|
|6 Months||Judo||3.00% p.a.||$1,000|
|1 Year||Macquarie||3.80% p.a.||$5,000|
|2 Years||Judo||4.10% p.a.||$1,000|
|3 Years||Judo||4.25% p.a.||$1,000|
|4 Years||Judo||4.40% p.a.||$1,000|
|5 Years||Judo||4.50% p.a.||$1,000|
Top savings account rates
|Unconditional||ANZ Plus||3.00% p.a.||Max deposit $250,000|
|Conditional||Bank of Queensland||4.00% p.a.||Ages 14-35, deposit $1,000 per month and make 5 debit card transactions in linked everyday account, max deposit $50,000|
|Honeymoon/Intro||Macquarie||3.70% p.a.||4 month intro rate then reverts to 2.75% p.a., max deposit $250,000|
To compound or not to compound?
An important consideration is that term deposits have simple interest, not compounding; compounding basically means your interest earns interest.
For example, if you had an unconditional 3.80% p.a. savings account rate with interest paid and compounded monthly, and paid nothing extra into it, you would earn $387 in interest in the year with a $10,000 balance.
Compare that to an equivalent one-year term deposit rate with interest paid at maturity, and you'd earn $380.
While a difference of only $7 - enough for a Big Mac - the results get more pronounced if you have a bigger deposit, save more, and save for longer.
Of course, with a term deposit the interest rate is locked-in, meaning it won't change like with a savings account rate.
That peace of mind might be worth $7 to you.