RateCity investigates the effects that a hold on the cash rate may have on term deposits and how you can get the most out of your investment.
July 14, 2010
When you compare term deposits to shares and other investments on the market, they are considered one of the lowest risks and most secure forms of investments for savers and investors alike. Because they are a fixed return, financial institutions are able to offer higher interest rates than other cash investments such as online savings accounts.
However, the big question is will the recent cash rate announcement by the Reserve Bank of Australia (RBA), leaving the official cash rate on hold at 4.5 percent, mean that these rates have reached their peak or will they continue? Damian Smith, CEO of RateCity says that the end could be near for unusually high savings account interest rates.
"Cash investments," Smith said, "such as term deposits and online savings accounts should continue to offer attractive interest rates for savers, due to ongoing competition for deposits by financial institutions. However, while the cash rate remains on hold, it's unlikely we'll see significant growth in the rates offered to savers."
Term deposits hitting above last year levels
Currently the average rate for one-year term deposits is 5.90 percent which is 2.46 percent higher than July 2009, which RateCity recorded at 3.44 percent. The current average rate for three-year term deposits is 6.42 percent which is 2.18 percent more than July 2009 at 4.24 percent.
When comparing rates for online savings accounts, the current average rate for a $5000 deposit is 4.85 percent, which is 1.05 percent less than the average rate for a one year-term deposit.
Make the most of now
If your current term deposit is nearing maturity or you are currently shopping around for a safe and secure cash investment, here are some tips on how to get the most out of a term deposit while the cash rate remains stable:
- Compare term deposits online to find some of the best rates currently available so you can earn more for your long-term or short-term investment.
- If you want to make the most of the current high rates, consider locking your money away for a fixed term. The longer the term the more interest you may receive, so look at taking advantage of the current high rates to get the most out of your investment.
- If you think that the RBA will announce a rate rise or if term deposit rates will increase in the near future, perhaps look at investing in a shorter term deposit. That way your money won't be tied up for a long period of time and once it reaches maturity you can withdraw your money and switch it over to a better performing account.