Savers forced to wait for boost to interest on deposits

Savers likely to be kept waiting for a boost to interest paid on deposits.

hot interest rate

Short-term deposit holders could be waiting a long time for banks to pay higher interest rates on their savings thanks to the climbing Aussie dollar, a leading economist told YourLifeChoices.

AMP Capital Head of Investment Strategy and Chief Economist Dr Shane Oliver said “any increase in central bank interest rates and thus interest paid on term deposits will be a very slow process”.

Dr Oliver is tipping the Reserve Bank of Australia (RBA) will not put up its cash rate until the last quarter of 2018.

Other analysts are more optimistic that rates will start climbing before the end of this year or at the latest early next year. But Dr Oliver believes those pundits are not taking the currency factor seriously enough.

The RBA has resisted raising its cash rate of 1.5 per cent for more than a year. But if the Australian dollar keeps strengthening, indications are it will be more determined to keep the rate low or even reduce it to keep a lid on inflation.

“For every 10 per cent rise in the value of the dollar you will see around one per cent knocked off domestic prices as imports become cheaper. This leads to people spending more and that is what fuels inflation,” Dr Oliver explained.

The RBA’s main goal is maintaining inflation within a range of two to three per cent. So far this year it has been around two per cent.

If you have a fixed-interest, short-term deposit paying less than two per cent, inflation is eating away at your savings, Dr Oliver said.

Attempts to rein the dollar back from edging too close to US85 cents means interest rates are probably going to stagnate. Currently, the dollar is wavering slightly either side of US80 cents.

If that the dollar continues to edge up – it was just US77 cents earlier this year – then don’t expect your financial institution to begin offering you a higher rate when you roll over your term deposit.

This month, the RBA posted a loss of $900 million for the year, compared with a profit of $2.9 billion in the previous 12 months. It blamed the Aussie dollar’s surge for stripping value out of the bank’s foreign assets.

So if you thought you might wait and see if banks offer higher interest payouts on the back of speculation that the RBA will move its rate higher, you will also need to consider how the currency is tracking.

In the meantime, it's worth comparing the interest rates on different term deposits to make sure your savings are growing rather than receding.

Is your nest-egg staying ahead of inflation? Should banks pay higher interest on term deposits?

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    COMMENTS

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    MICK
    29th Sep 2017
    1:15pm
    Money in the bank is a mugs game. The inflation the bastards in government claim we do not have (ha!) is eating away at your capital. Great for banks. Bad for investors. Avoid apart from enough to tide you over and for unanticipated emergencies.
    johninmelb
    29th Sep 2017
    2:36pm
    So presumably Mick, you are an Financial Planner since you know so much about making money.

    Pray tell us poor pensioners with a few bob in the bank as back up what we should be doing with our money to preserve our funds, and give us a return to keep us out of penury and the clutches of Centrelink.

    You make pronouncements about so many things, but never give us useful, actionable and practical advice.
    floss
    29th Sep 2017
    3:47pm
    Inflation plus a hostile Fed. Gov. are both chipping away at our retirement.Yes we have inflation power real estate and much more.Would have to agree with Mick as to our so called leaders.

    29th Sep 2017
    6:31pm
    johninmelb, have we at anytime heard or seen any useful or practical advice of our ylc labor micky, he/she, see the gear he/she is dressed in, says enough about where his/her allegiancce lays!
    Rae
    1st Oct 2017
    9:40am
    Go ski a mountain somewhere and get over it.
    Franky
    30th Sep 2017
    12:16pm
    Cost of living is the culprit, and I don't know how the claim of only 2% something inflation rate is substantiated. Take groceries and electricity, something that makes up a big part of our budget... It's a case of governments fiddling the figures
    floss
    30th Sep 2017
    4:04pm
    heemskerk99 you said Micks comment was bad your comment was bloody stupid.
    Anonymous
    1st Oct 2017
    6:52pm
    floss, you are an other idiot who can't think for him/herself!!! as is rae, still waiting for an intelligent comment of him in these columns, whingers the lot of you!!!!!!!!!
    have we ever seen a comment of labor micky without having a go at the government yet he/she never comes up with a solution or advise of how to improve this country, much easier to wreck then to build this country which once was listed as the greatest country to live in on this earth, it is the likes of you, labor micky etc who have brought AUSTRALIA to its knees, my advise, if you don't like AUSTRALIA, just don't root it up, just leave and find your UTOPIA and live your lives the way you want however don't come back, as many have done before you with bleeding hearts confessing you regretting your move, please just go before you do more damage to this great country, AUSTRALIA, we, with pride, call home.

    1st Oct 2017
    12:37pm
    When you have ratbags like Barr and the Rat bury spending 1+ billions on a tram in Canberra which the majority of Canberrans will not be able to use .They have financially crippled low income and pensioners who are paying for this with the large increases in rates and other taxes. I only hope the people that voted for these idiots are suffering financial strain worse then the pensioners and low income people that they have inflicted these idiots on.