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With cash rates increasing, it pays to shop around

Prior to and after last week’s RBA rate rise there has been significantly more attractive TD rates emerging with TD rates of over 3% for two years now available from some banks including several of the big 4. However, it pays to shop around with significant discrepancies between rates that are available and the rates that the banks are promoting on their websites.

Following the RBA’s move last Tuesday and the bank’s dramatic increase in the rates they have on offer, there has been two very interesting articles in the AFR on interest rates and term deposits.

As we noted in our recent Weekly Market Update, for investors looking for stable bank deposit income, the market’s expectation of higher interest rates have seen some attractive TD rate offers in the last few weeks – particularly in the 1-2 year maturity.

A recent AFR article noted a CBA rate of 2.25% for 18 months but there are also rates of up to 2.75% for 12 months and almost 3.50% for 2 years from banks for High Net Worth (HNW) investors.

While banks will likely pass on the 25bp cash rate increase to at-call savings accounts, those at-call rates typically remain below 0.50%, so investors are being rewarded for putting money out for term with 1-2 year TDs. As banks react to higher market rates and funding needs at different speeds, it pays to look around as the current difference between the rates available is wide.

A second AFR article noted that while the RBA has begun the process of increasing rates (and noting RBA Governor Lowe’s comments that a neutral cash rate might be 2.50%), as rates increase (and mortgage rates in particular – think 5-6% if we get to a 2.50% cash rate), the potential impact of the economy could be material.

So while the RBA Cash Rate is going up (and the market is pricing that into term rates), there are potential economic consequences and limitations as to how far rates can go.

This week marks the beginning of the first increasing interest rate environment in over ten years and sees cash thrust back into the limelight. Already IAM’s Head of Cash, Bianca Burt, has seen a significant increase in calls this week from advisers looking for better rates for their pools of investor cash.

IAM has access to competitive TD rates for a range of terms from over 50 ADIs that can be accessed from a single investment platform with the added convenience of onboarding once and then being able to pick and choose from a range of TDs and ADIs. For more information visit incomeam.com.