Term deposit rates on the rise

Finally some good news for savers as financial institutions start jacking up their rates, writes Sophie Elsworth

SAVERS have been delivered a much-needed boost to cash savings locked away in term deposit accounts.

The Reserve Bank of Australia has kept the cash rate on hold at 1.5 per cent since August 2016 — a win for those paying down housing debt but a loss for deposit holders.

But new data from financial comparison website Mozo has revealed more than 20 financial institutions have jacked up interest rates on term deposit accounts in the past two months.

Mozo’s spokeswoman Kirsty Lamont said the jumps are significant — climbing by an average of 26 basis points — and savers have finally been given some reward.

“Term deposit rates have been absolutely miserly in the past couple of years and for the first time we are seeing signs of life, with banks starting to increase (them),’’ she said. “This is the biggest positive change we have seen for term deposit accounts in the last couple of years.”

Term deposits guarantee customers an interest rate that is usually higher than those offered on at-call online savings accounts and the interest is usually paid at the maturity of the term.

Some term deposits allow funds to be withdrawn prematurely, but the customer will be penalised if they do so.

But savers wanting to get decent rates will have to sniff around to find the best deals.

Mozo’s database shows the best one, two and three-year rates range from 2.8 per cent to 3 per cent.

Lender ME’s spokesman Matthew Read said there are some tricks of the trade to snaring decent returns on cash that is locked away.

“The first is to actively compare rates to find the highest at maturity and moving to another term or another financial institution if necessary,’’ he said.

“Consumers can use rate comparison sites but these often don’t compare all rates across all institutions.”

But be warned that if you are locking money away in a term deposit, your rate will not automatically roll over once the fixed term expires and you will be hit with a much lower interest rate.

Mr Read warns customers not to automatically roll over the deposit into another term deposit account with the same institution until you’ve checked what rate they are offering.

Ms Lamont said that customers should also look beyond the big four banks because many smaller providers offer sharper rates.