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Ditch the major banks and earn 1.2 percent more

Ditch the major banks and earn 1.2 percent more

If you are in the market for a term deposit, RateCity shows you how comparing the smaller institutions can really pay off on your investment return.

June 30, 2010

As we enter the new financial year there are several reasons why now is the right time to invest your money in a term deposit and earn a higher interest rate by shopping around.

If you have been thinking about investing your money in a term deposit or your current term deposit is nearing maturity, smaller financial institutions are currently offering rates for term deposits that are up to 120 basis points (1.2 percent) higher than the major four banks (ANZ, Commonwealth Bank, National Australia Bank (NAB) and Westpac), according to a new study by RateCity.

Smaller lenders vs major four banks
For short-term deposits RateCity found that the benchmark rate (the average of the major four banks) for the most popular term of three-months is 3.68 percent. That is 1.2 percent less when compared to the average rate of the rest of the market at 4.88 percent. The benchmark rate for six-month term deposits is 4.44 percent which is 94 basis points lower than the benchmark of smaller financial institutions at 5.38 percent.
When it comes to long-term deposits, one of the highest rates on the market for three-year terms is 7 percent by MECU, which is 1.75 percentage points above the average money market rate. This is closely followed by five-year terms, which is up to 1.74 percentage points higher than the money market rate at 7.3 percent by RaboDirect (as at June 28).

Savers can now save more with tax cuts
In addition to the competitively high interest rates from smaller financial institutions, investors now have the opportunity to save even more with the new tax incentives introduced by the federal government, which commenced on July 1.

For savers this means that the first half (up to $500) of the first $1000 of interest earned on term deposit accounts is tax free. For instance, if you deposited $20,000 into a 12-month term deposit, you could earn 6.5 percent interest with ING Direct or $1300 of interest paid annually. If you earn the current average salary of about $60,000 you will now only pay tax on $800 of the interest earned instead of the total amount ($1300) and save yourself $150.

Whether you are a looking for a new term deposit account or currently have a term deposit that is nearing maturity, ensure that you compare online to find one of the highest interest rates available for both short-term and long-term investments and get the most out of your investment.

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