Savings accounts vs Term deposits

Mortgage stress is a growing problem

The proportion of prime Australian housing loans now in arrears has been rising in Australia for the last six months according to Standard & Poor’s. About 1.14 per cent of home loans funded by mortgage-backed securities are in arrears, up slightly from March 2016. Arrears means behind on repayments by at least 30 days. If you are having problems repaying your home loan, because of unforeseen circumstances, you can ask for hardship assistance from your lender.

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Term deposits need active management

InfoChoice’s Laura Crowden said savers need to “actively manage” their term deposits and warns people not to “set and forget” their term deposits. “Savers should regularly shop around and compare rates,” said Laura. “Most importantly, be willing to move their money to a different institution to get the best rate.” And don’t get caught out by rollover risk. “If you do nothing at the end of your term deposit period your bank may roll over your term deposit into a new term deposit. “It’s likely that the new term deposit will have a lower interest rate.”

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What is a bonus rate on a savings account?

A savings account bonus rate is an additional rate of interest above the base rate. Savers can often get the bonus rate by meeting certain conditions, like making a minimum monthly deposit. Sometimes the bonus rate expires after an introductory period. Read more in our guide to bonus rates here.

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Savings accounts vs term deposits

The Reserve Bank of Australia has brought interest rates down to historically low levels. The official cash rate is now set at 1.75 per cent and economists are predicting one more rate cut this year. In this environment, savers need to be alert and prepared to shop around to get the best rate. Smart savers who are prepared to move their money can get returns over three per cent. Online high interest savings accounts — or “at-call” deposits – may be a good option for many savers. Right now, many savings accounts have better returns than fixed term deposits.

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What are the average term deposit rates right now?

Financial comparison website InfoChoice reports that a 12 month, $10,000 term deposit now attracts an average interest rate of 2.63 per cent. That equals $263 in interest.

Average two year term deposit rates are now 2.7 per cent, giving a $540 return on a $10,000 deposit over two years. There are plenty of term deposits now paying more than these average rates.

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