Good news for savers

Some financial institutions have increased term deposit interest rates, writes

Tahnee Almelor recently found out she would be working from home indefinitely and has set up a workspace on her dining room table. Picture: Jonathan Ng

KEEPING cash stashed in the bank could be the best place for it right now given the uncertainty that remains around other asset classes, including shares and property.

Many banks have increased their interest rates for some term deposit options – a small win for customers during the COVID-19 pandemic.

The Reserve Bank of Australia has cut the cash rate twice this month, the second time in an unprecedented emergency move amid the coronavirus pandemic.

InvestSMART’s chief market strategist, Evan Lucas, said given the ASX200 had plummeted by 33 per cent since February, holding cash short-term in bank deposits could be a good option.

“Term deposits, even with the slight increase we’ve seen from the banks, are giving you returns just above inflation,” he said.

“Your money will hold value so it’s not a bad option, but don’t forget asset allocation is still core. But remember, term deposits do have restrictions around their early redemptions.”

Larger bank ING last week hiked its six-month, ninemonth, one-year and two-year fixed interest rates by 0.25 percentage points; for 12-month fixed it is one of the highest on the market at 1.85 per cent.

But savers should be warned fixed deposits come with strict restrictions and penalties apply if cash is withdrawn prior to maturity of the account.

Financial comparison website Mozo’s spokeswoman, Kirsty Lamont, said there was finally a “spark of light for Australia’s savers”.

“A number of financial institutions have increased atcall rates for term deposits and savings accounts in the last week,” she said.

“The big four banks have announced selected increases to term deposit rates and that seems to have ignited some competition in the term deposit market, anywhere from 0.25 to 0.55 percentage points.”

According to Mozo’s database, the highest one-year term deposit and at-call savings accounts deals are up to 2 per cent. “It presents an attractive opportunity for people who may have pulled their money out of the share market and are looking to jump back when the time is right,” Ms Lamont said.

“If you are in the position that you may need to access your savings in the next few months or more, you are better off looking at the most competitive at-call savings you can find.”

For $10,000 locked away in a moneysaverHQ.com.au 12-month term deposit with a rate of 2 per cent, the saver would earn $200 in interest at the time of maturity.

Rising Tide Financial Services’ director, Matt Hale, said people should not make any decision about their case in “haste”.

“If certainty of returns are important in the short-term and you are risk averse, they may be a good option,” he said.

“Keeping that in mind, the down side is that you won’t have access to the funds for the specific period you choose.”

For those concerned about the safety of their cash sitting in the bank, the government guarantees deposits of up to $250,000 per person, per bank.