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Angus Hohenboken and Linda Daniele

From: The Australian

October 17, 2008 12:00AM

BANKS are cutting interest rates on government-guaranteed savings accounts amid a rush by investors seeking to secure their money away from unpredictable stock markets.

 Australia’s total balance of personal term deposits offered by the banks has increased by 40 per cent this year.

But according to Infochoice, rates for term deposits, which lock in funds for 30 days to five years, have fallen as much as 3.75 per cent in the past fortnight.

While interest rates for term deposits peaked mid-year at more than 8.7 per cent, offering some of the highest returns in the past decade, most dived after the RBA started cutting back the cash rate.

RateCity executive chairman Andrew Willink said banks were reassessing the margin needed to keep attracting funds.

“The hungry need for deposits (by banks) has dissipated because governments around the world are flushing the markets with cash,” he said.

Infochoice chief executive Shaun Cornelius said term deposit rates had dropped an average of 1per cent over the past fortnight, effectively passing on the full cut by the RBA.

“This was more of a cut than we saw with the last RBA change, where in some cases the term deposit rates went up when the RBA rate went down,” he said.

“This is because the banks have a stronger outlook that the RBA will continue to significantly drop rates into the future.”

ANZ senior consultant Lee Harris said: “Setting rates is a game. The pricing team might decide they need more funds under management in the short term — that’s why the rates can be higher in the short term in some cases.

“At the moment, more people are investing in term deposits … people are telling me they’ve lost too much on the stock market.”

Commonwealth Bank spokeswoman Nichole Ismay said rates on term deposits and other savings accounts were constantly under review.

“The cash rate and the bank bill swap rate has changed significantly in the past three months. As a result, so have the changes to the products in question.”

Cannex financial analyst Peter Arnold said the banks were still offering attractive rates of about 8 per cent, and advised investors to shop around.

“Suncorp were yesterday offering 8.2 per cent on three years. I haven’t seen a good three-year special like that recently,” he said.

Cannex noted a 40 per cent increase in term deposit balances in the year to August.

NAB yesterday offered a 5.6 per cent rate on $10,000 term deposits invested for 12 months, behind ANZ and the Commonwealth Bank’s offers of 5.8 per cent, Westpac’s 6.5 per cent and an ING rate of 6.25 per cent.

Savings accounts, with funds available on call, dropped by an average of 1 per cent in the past week.

Commonwealth, St George, Bank SA and NAB are offering savings account rates of 5.75 per cent, while HSBC and Rabo are offering 6.5 per cent.