June 30, 2011
With the wounds of the global financial crisis still fresh, Australians have changed their attitudes to investing and are holding more cash within their portfolios than in the past, according to research from CoreData.
Australian Prudential Regulation Authority (APRA) figures reveal a corresponding jump in the amount of money being invested in deposit accounts (such as term deposits and savings accounts) further indicating Australia's new penchant for more liquid assets.
As a nation we have $497 billion sitting in bank accounts, which is $40 billion more than last year, according to APRA's April data. And that's not including the money deposited in non-banks. Most estimates add another $50 billion to APRA numbers to account for the non-bank sector.
The good news is that interest rates on term deposit accounts are increasing too. Rates on terms from 30 days up to 12 months are up seven basis points on average since January (for $50,000 deposits), according to RateCity data.
Rates on the most popular term for investors, three-months, increased the most by 14 basis points on average in six months. So the average three-month term deposit (nominal) interest rate is now 5.16 percent, which is the highest it's been in 18 months.
Damian Smith, chief executive of RateCity, says term deposits provide an easy win for banks to raise capital while taking advantage of Australian's confidence in cash.
"There are obviously a lot of worried Australians out there who prefer to invest in safer options like savings accounts and term deposits. In keeping with the APRA data, we've seen a 34 percent increase in applications for term deposits via RateCity compared to six months ago," he says.
These types of investments are the lowest risk options on the market because they offer a guaranteed rate and your money is safely locked away for a set period of time while earning interest. But do they offer the best yield?
Maximise your return
It has long been known, but rarely publicised, that financial institutions are willing to negotiate their term deposit rates if you give them a call and ask. But a new online platform at RateCity means you no longer have to make that call.
It's a new private quoting tool, powered by DealMax, which allows savers to enter a secure environment, fill in their details and be offered exclusive best-of-the-day deals on term deposit rates directly from the institutions. By comparing term deposit accounts in this way, savers can potentially find deals of up to 105 basis points better than what institutions advertise.
Related term deposit links