If the cash rate is cut, will my term deposit rate go down?

A cut to the Reserve Bank of Australia’s (RBA) cash rate generally means good news for mortgage holders. But for savers, it can spell the downward spiral of the interest earned on their savings products.

The big four banks are currently predicting that the RBA may cut the cash rate again in late 2024, potentially between August and December. When the cash rate is cut, this generally has a trickle effect onto savings products, with banks and providers passing this reduction on to their accounts. 

While the RBA cash rate may influence term deposit rates, the relationship is not always immediate; especially for existing customers locked into a fixed rate. However, if your term deposit is about to reach maturity, and interest rates have been cut, you may find that your next term deposit rate is lower.  

Term Deposit

• 1 month
• Automatic maturity rollover
• Joint application available

Enjoy a competitive interest rate on your term deposit with automatic maturity rollover from Rabobank.

Interest rate

2.00%

for 1 month

Min deposit

$1,000

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The impact of interest rate cuts to term deposits

When the RBA changes the cash rate, this can influence various factors within the Australian financial system. Most significantly, variable interest rates on products like home loans and savings accounts tend to move accordingly. For example, if the interest rate were increased by 0.25%, your savings account rate may increase by this amount as well.

However, the impact on term deposit rates is not always felt by customers right away. This is because term deposit rates are fixed rates, meaning customers are locking in an interest rate for a set period of time when they sign up. 

This is one of the advantages of choosing a term deposit over a savings account, as if interest rates are tipped to fall, you may be able to lock in a higher interest rate for your nest egg, and therefore a greater return on your investment. 

So, if the cash rate is cut, your term deposit provider may decrease interest rates for new customers across some, or all of its term deposits. However, you should not feel the effects of this change immediately. 

A cash rate cut may only impact your term deposit rate if:

• Your term deposit reaches maturity and it rolls over to a new fixed term. In this instance, term deposit rates may be lower than when you first signed up; or
• Your term deposit reaches maturity and you move your savings to a new term deposit. If the interest rate environment has fallen significantly since you first locked in your deposit account, you may find that rates are lower everywhere, regardless of whether you compare your options and find the highest rate on the market.

Essentially, as long as your savings are staying put in your term deposit, you will have the current rate you are paying on lock until the term expires. 

Rate changes aren’t always passed on

The cash rate is one factor - albeit a significant one - that influences interest rates set by a bank or provider. Term deposit rates are influenced by market dynamics, the cost of funding, competitive pressures, and individual bank strategies. 

It’s worth keeping in mind that your bank or provider will not always pass on every single RBA cash rate change to you. In fact, some may choose to change interest rates out-of-cycle with the Reserve Bank. 

Meaning, that even if the cash rate stays on hold throughout your term deposit period, the provider may still increase or lower interest rates as it chooses. This is why it is so important to carefully compare term deposit options across a range of providers when choosing your next term deposit. 

These are the highest interest rates on term deposits on the RateCity database, accurate at the time of publishing:

1-year term deposits

2-year term deposits

3-year term deposits

Source: RateCity.com.au. Data accurate as of 07/11/2023.

Be sure to compare more than just the interest rate offered when searching for your best term deposit. Compare factors like any fees involved, as well as the customer service and technology offered by the provider. 

Compare term deposits

Provider

Real Time Rating™Min depositInterest rateMaximum rate

$1,000

5.10%

for 6 months

5.10%

for 6 months

More details

Product info

Personal Term Deposit (At Maturity)

• 2024 Award Winner
• 6 months
• Automatic maturity rollover
• Joint application available
• Maturity alert by email

$1,000

2.00%

for 1 month

4.90%

for 60 months

More details

Product info

Term Deposit

• 1 month
• Automatic maturity rollover
• Joint application available

$1,000

3.50%

for 3 months

4.80%

for 12 months

More details

Product info

Term Deposits

• 3 months
• Automatic maturity rollover
• Joint application available
• Maturity alert by email

$5,000

0.50%

for 1 month

5.00%

for 7 months

More details

Product info

Term Deposit

• 1 month
• Automatic maturity rollover
• Joint application available
• Interest payment to other institution

$5,000

4.70%

for 11 months

4.70%

for 11 months

Product info

Term Deposit Special

• 11 months
• Automatic maturity rollover
• Joint application available
• Maturity alert by phone

$5,000

1.25%

for 1 month

4.70%

for 12 months

Product info

Advance Notice Term Deposit

• 1 month
• Automatic maturity rollover
• Joint application available
• Maturity alert by phone

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