How Big Four get away with offering 'paltry' term deposit rates

Combined Pensioners and Superannuants Association policy manager Paul Versteege takes the Big Four banks to task on their term deposit rates and explains the problem – for many – with online-only banks.

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With the Reserve Bank’s cash rate and mortgage rates set to rise, will term deposit rates follow?

The answer is yes.

In fact, some term deposit rates have already risen, but not with the Big Four banks -Commonwealth, nab, ANZ and Westpac – which were all offering a measly one quarter of one per cent on an annual term deposit on 13 April.

A quick online comparison check shows that you can do much better. The best rate we could find was 1.92 per cent with MyLifeFinance.

Then there were three banks offering 1.9 per cent. Macquarie Bank and AMP were the best known of them.

Read: Big Four bank still ‘not doing the right thing by the customer’

If you want to go a little obscure, Judo Bank also offers 1.9 per cent.

It’s a great name, explained by Judo’s “high-touch, high-tech” approach and nothing to do with how Judo’s security guards provide security at its branches.

Because there’s the catch.

MyLifeFinance, Macquarie Bank, AMP and Judo Bank don’t have branches. If you want a 1.9 per cent term deposit, you will be applying and depositing online.

That is fine if you are online, but if you’re not, or you don’t trust online banking, you miss out.

Read: How to protect yourself when doing your day-to-day banking

It’s a small manifestation of the ‘digital divide’ – the exclusion of those not online. And that group tends to be older.

The Big Four can’t justify almost eight times less in interest on annual term deposits by pointing to their shopfront branches and arguing that it costs a lot to run those branches. They close branches when they become unprofitable.

The Big Four banks (and a swathe of smaller banks and building societies) are relying on two things in their paltry term deposit rate offerings.

One is customer loyalty. People, certainly older people who keep their savings in term deposits, tend to stick with ‘their’ bank.

The other thing is that a lot of term deposit holders, particularly older ones, are not tech-savvy. They are not online or don’t trust ‘online’ for banking transactions.

Read: Rising inflation biggest threat to retirement income

That’s how the Big Four and other traditional banks can keep their term deposit rates lower than necessary.

So, if you are tech-savvy, go online and compare rates using one of the many comparison sites.

That is, if you want to stick with putting your money into term deposits.

With the annual rate of inflation at 3.5 per cent, putting your money into term deposits, even with a rate of 1.9 per cent, means that your savings have less purchasing power at maturity.

Because with term deposits you are always slumming it investment-wise, regardless of the rate.

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Written by Paul Versteege

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