Money Your Budget Banks widen the gap between mortgage rates and term deposits
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Banks widen the gap between mortgage rates and term deposits

falling term deposit rates
"Find the best term deposit rates you can right now and lock in as much as you can." Photo: Getty
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The big four banks have responded to the Reserve Bank’s June 4 interest rate cut by slashing term deposit rates well above the RBA’s 0.25 per cent cut.

Figures from Ratecity.com.au show that since March 7, the big four – CBA, Westpac, NAB and ANZ – have all slashed their rates on one-, three- and five-year term deposits by much more than their cuts to standard variable mortgages.

The CBA and the NAB slashed their one-, three- and five-year term deposits by 0.40, 0.60 and 0.70 points respectively since early March, while passing on a cut of 0.25 points to its customers on standard variable mortgage rates.

Westpac has cut its one-, three- and five-year rates by 0.35, 0.60 and 0.90 points respectively, while passing on a cut of 0.20 points to variable-rate mortgage customers.

Meanwhile, ANZ was the least generous of the big four, cutting its mortgage rate by just 0.18 points, while slashing term deposit rates by 0.35, 0.50 and 0.75 points on the three deposit products.

falling term deposit rates
Source: Ratecity.com.au

But the cuts haven’t been limited to the big four, either.

One Bank of Queensland customer who spoke to The New Daily on the condition of anonymity related that the bank had cut his one-year fixed term deposit rate twice since June 4, from 2.52 per cent to 1.85 per cent – a total cut of 0.67 points, 0.42 points more than the RBA’s 0.25 per cent cut.

And a review by The New Daily of 41 institutions showed rates on 52 different term deposit products had been cut by more than the RBA’s 0.25 points cut, since June 1.

But institutions were also furiously cutting rates in the lead up to the RBA announcement, industry watchers say.

Peter Marshall, product data manager at rates comparison site Mozo, confirmed that “term deposit rates are being absolutely hammered”.

“Over the last few months we’ve seen a huge number of term deposit rate cuts,” Mr Marshall said.

“It was quite unbelievable just how frequently they were being cut in the lead up to the RBA announcement, and even since then we’ve seen more cuts come through.”

banks cutting term deposit rates
Source: Canstar

Mr Marshall said in the past 10 days, 42 of the 75 term-deposit providers that Mozo tracks have cut rates.

“That’s a huge number and it ignores all the cuts that happened before the start of June, and there was a mountain of cuts before that.”

But Canstar finance commentator Steve Mickenbecker said while term deposits may have copped a flogging in recent months, over the longer term, online savings accounts have taken a pasting too.

Canstar figures show that in September 2016 (just after the RBA’s most recent cut before the June 4 move), the standard variable home loan rate was 2.06 per cent above the 12-month term deposit rate and 2.92 per cent above the online savings account rate.

Today, the margin over term deposits is virtually unchanged at 2.03 per cent, but the margin to online savings account had blown out to 3.16 per cent.

In that same period, the average standard variable home loan rate fell 0.07 points, and the 12-month term deposit fell 0.06 points – more or less in unison.

But the base rate for online savings fell by an whopping 0.33 points, Mr Mickenbecker pointed out.

He said for many years bank customers had been weaned off term deposits and over to online savings accounts, which had better rates and the convenience of being at call, but those accounts had lost their lustre.

In a statement, ANZ said the moves reflected the balancing of “the increased cost in managing our business with our desire to provide customers with competitive lending and deposit rates”.

In a statement, NAB said “the costs associated to provide these products [term deposits] is based on a range of factors, including the prospect of a change in the cash rate, borrowing costs and economic pressures”.

CBA said the bank frequently reviewed products “to ensure they reflect market conditions” and that they still provided value to customers.

Westpac did not respond before deadline.

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