Small signs of life in term deposit market

Retirees might have adjusted to low interest rates – but that doesn’t mean low rates are not still making life tough, one banking expert says.

It was reported yesterday that competition in the term deposit market had heated up.

ANZ upped its eight-month rate by 25 basis points, taking it to 3.55 per cent. SBS boosted its seven-month rate to 3.65 per cent.

Banking commentator Claire Matthews said a number of interest rates were moving. She said that could indicate more competition, or more demand for lending, prompting banks to boost their retail funding.

But she said the rates were still a long way from where they once were.

‘‘There was a time when you could get 20 per cent on a term deposit, but we wouldn’t want that to return,’’ she said.

‘‘In reality it would be better to see slightly higher term deposit rates. But that comes down to inflation and what the Reserve Bank does with the official cash rate.’’

She said that while retirees would have adjusted after years of low rates, it could still be tough for many. Term deposits would not deliver enough to live on.

Ten years ago, term deposit rates were roughly twice what they are now. ‘‘Retirees need to make more active decisions. You can’t just put the money in the bank and rely on that.’’

Economist Gareth Kiernan, of Infometrics, said there could be upward pressure on interest rates because global funding costs had increased over recent months.

‘‘These pressures could encourage banks to try and source a higher proportion of their funding domestically and offer rates that are a bit higher.

‘‘Having said that, borrower demand for funds is probably not growing that rapidly at the moment, with house sales tracking sideways and lower business confidence acting as a dampener on investment.

‘‘So the upward pressure or competition on deposit rates is likely to be relatively modest.’’

Matthews warned that, if term deposit rates were to increase significantly, it would probably also mean an increase in the interest rates charged on loans.