Take The Piggy Bank Shopping For High Rates
Sydney Morning Herald
Saturday April 19, 2008
If you've got spare cash, there's a silver lining to the current credit squeeze. Faced with higher funding costs from the wholesale markets, banks and other financial institutions are looking to their traditional customers for more of their funding. Pick up any newspaper and you'll find it littered with ads for high-interest savings accounts and term deposits, with some offering rates in excess of 8per cent. After years of paying as little as possible to retail depositors, the banks have rediscovered the benefits of a healthy mum and dad deposit base and are competing hard for your business.
In a recent report on deposit accounts, researcher Cannex found the major banks' highest deposit rates had lagged the Reserve Bank's cash rate by as much as 1 percentage point in the past five years. But those rates are now very close to the official interest rate, and if you shop around you can lock in an even higher rate for a relatively short period. The tables show the best rates on online savings accounts and 180-day term deposits. We've assumed a $10,000 balance in the term deposit and $1000 in the online savings account - though many of these accounts pay the same rate whether you have $1 or $100,000 invested. With the cash rate now at 7.25per cent, you can find online savings accounts with rates as high as 7.8 per cent. Online savings accounts have grabbed a big share of the market in recent years, and with good reason. Most of these accounts have no bank fees, no minimum balance, and avoid the tiered interest rate structures that can make products like cash management accounts and term deposits less attractive for smaller depositors.But as the market has developed, different terms and conditions have emerged and depositors need to understand just what they are getting. Just as lenders used to chase market share in home loans by offering cheap introductory or honeymoon rates, introductory offers have also emerged in the online account market.RaboPlus's market leading rate, for example, is a promotional rate for new and existing customers until July 31. Its standard rate is a more mundane - though still better than the official rate - 7.3per cent. Similarly BankWest's 7.75per cent is a rate for new customers for the first 12 months of their account, with older customers receiving its standard rate of 7.25per cent. Another development is accounts that pay a lower interest rate - or no interest at all - if you don't meet minimum conditions, such as depositing a certain amount each month or maintaining your account balance. HSBC's 7.5per cent rate, for example, isn't a promotional rate, but it applies only in months when you don't make a withdrawal from the account. If you do withdraw, you receive no interest for that month. That makes the Members Equity and Railways Credit Union products a better proposition for those who want access to their money, even though all three accounts have the same headline rate. Another variation on this theme is BankWest's Regular Saver account, which offers a super interest rate of 9per cent but requires you to deposit at least $50 (and no more than $500) each month and to have a linked BankWest account. Some of the big banks also require you to link your online account with another one of their accounts - which is fine if you're an existing customer but something of a turn-off if your everyday account is with another bank.But it's the term deposit market where the really hot deals are on offer. In recent years term deposits offered lower interest rates and less flexibility than at-call accounts. But as the Cannex tables show, the banks are now so hungry for deposits that they're offering rates of 8per cent or more on amounts as low as $10,000. And you don't have to lock your money away for a lifetime. Rates of 8per cent are available for terms as short as 90 days, and if you're prepared to lock your money away for 180 days, all in Cannex's top 10 are offering rates of 8.15 per cent or more.To some extent this reflects the wholesale market, where both 90- and 180-day bank bills are offering a higher yield than cash. But just as financial institutions have been disinclined to offer retail customers the official cash rate on deposits, it is unusual for retail term deposits to offer such a high return.Of course, there's a catch with term deposits too, in that if you need your money before the term expires, you generally won't receive the full interest rate. It also pays to check the new rate rather than automatically rolling over term deposits when they expire, as the rollover rate may not be as attractive as other offers on the market. But if you have spare savings, it's a great time to go shopping.
© 2008 Sydney Morning Herald
