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05-08-2014, 10:20 PM
Big four banks lead lenders in slashing term deposit rates for savers
THE AUSTRALIAN AUGUST 06, 2014 12:00AM
Michael Bennet
Reporter
Sydney
Term deposit cuts
Term deposit cuts Source: TheAustralian
AMID the hype surrounding the banks’ cuts to five-year fixed home loans, they have also been quietly reducing term deposit rates with far less fanfare.
Since Commonwealth Bank on July 23 slashed five-year fixed loans to its record low 4.99 per cent, spurring rivals to match the offer, the big four banks have reduced five-year term deposit rates for savers by up to 20 basis points, according to data provider Canstar.
National Australia Bank has cut its five-year term rate by 15 basis points to 4.05 per cent, while Westpac — which has been on a multi-year quest to increase deposits — still has the most attractive deal at 4.15 per cent, despite a larger reduction of 20 basis points.
Holding official interest rates at a record low 2.5 per cent yesterday, the Reserve Bank noted low returns from “safe instruments” were forcing savers to scramble for higher yielding options.
Property has been popular, with investor loan approvals at record highs in a trend worrying some economists due to fears that low rates are overheating markets such as Sydney.
But the major banks have not been alone in cutting term deposits. Canstar research manager Mitchell Watson said that in the week following CBA’s move, about half the lenders that reduced their five-year fixed home loans also reduced their corresponding term deposit rates.
Suncorp made the biggest cut, chopping five-year deposits by 40 basis points to 3.6 per cent.
The cuts come as the banks’ funding costs continue to ease, allowing them to compete harder for mortgages while still maintaining margins.
The recent spike in the mortgage war will knock less than two basis points from the major banks’ margins due to the fall in term deposit rates — one of their biggest liabilities — according to Deutsche Bank.
The banks are also raising cheap cash by issuing bonds in offshore wholesale markets at prices not seen since before the global financial crisis.
“While asset competition has increased we would flag that there has been a substantial reduction in funding costs which will offset the impacts,” Deutsche analyst James Freeman said.
CBA is next week tipped to report a full-year profit of about $8.6 billion.
Like five-year fixed home loans, which banking sources say only about 1 per cent of borrowers typically choose, the equivalent period in term deposits is not as popular as shorter terms.
Canstar’s data shows the major banks have also chopped their 90-day term deposit deals in the past six months, but raised some six- month offers and held one-year terms flat. Francesco Mirenzi, a senior analyst at Moody’s, said improved wholesale markets were driving a fall in competition for deposits.
While Moody’s held its outlook for the banks at “stable”, the ratings agency warned that ongoing strong house-price appreciation was a “substantial” risk. Capital city price rises have slowed this year, but “the risk that a bubble forms is rising”, HSBC economists said last week.
Regulators have warned the banks not to drop lending standards as they strive to write loans amid muted demand for loans from businesses.
Making a fresh assault, Aussie Home Loans yesterday launched a new 4.79 per cent variable rate deal for loans up to $750,000 to build and renovate properties, which are more risky than built housing.
Macquarie, which has been rapidly expanding its mortgage book, is funding Aussie’s new product. In the past fortnight, 71 five-year fixed home loans have been cut by as much as 80 basis points, according to RateCity.
THE AUSTRALIAN AUGUST 06, 2014 12:00AM
Michael Bennet
Reporter
Sydney
Term deposit cuts
Term deposit cuts Source: TheAustralian
AMID the hype surrounding the banks’ cuts to five-year fixed home loans, they have also been quietly reducing term deposit rates with far less fanfare.
Since Commonwealth Bank on July 23 slashed five-year fixed loans to its record low 4.99 per cent, spurring rivals to match the offer, the big four banks have reduced five-year term deposit rates for savers by up to 20 basis points, according to data provider Canstar.
National Australia Bank has cut its five-year term rate by 15 basis points to 4.05 per cent, while Westpac — which has been on a multi-year quest to increase deposits — still has the most attractive deal at 4.15 per cent, despite a larger reduction of 20 basis points.
Holding official interest rates at a record low 2.5 per cent yesterday, the Reserve Bank noted low returns from “safe instruments” were forcing savers to scramble for higher yielding options.
Property has been popular, with investor loan approvals at record highs in a trend worrying some economists due to fears that low rates are overheating markets such as Sydney.
But the major banks have not been alone in cutting term deposits. Canstar research manager Mitchell Watson said that in the week following CBA’s move, about half the lenders that reduced their five-year fixed home loans also reduced their corresponding term deposit rates.
Suncorp made the biggest cut, chopping five-year deposits by 40 basis points to 3.6 per cent.
The cuts come as the banks’ funding costs continue to ease, allowing them to compete harder for mortgages while still maintaining margins.
The recent spike in the mortgage war will knock less than two basis points from the major banks’ margins due to the fall in term deposit rates — one of their biggest liabilities — according to Deutsche Bank.
The banks are also raising cheap cash by issuing bonds in offshore wholesale markets at prices not seen since before the global financial crisis.
“While asset competition has increased we would flag that there has been a substantial reduction in funding costs which will offset the impacts,” Deutsche analyst James Freeman said.
CBA is next week tipped to report a full-year profit of about $8.6 billion.
Like five-year fixed home loans, which banking sources say only about 1 per cent of borrowers typically choose, the equivalent period in term deposits is not as popular as shorter terms.
Canstar’s data shows the major banks have also chopped their 90-day term deposit deals in the past six months, but raised some six- month offers and held one-year terms flat. Francesco Mirenzi, a senior analyst at Moody’s, said improved wholesale markets were driving a fall in competition for deposits.
While Moody’s held its outlook for the banks at “stable”, the ratings agency warned that ongoing strong house-price appreciation was a “substantial” risk. Capital city price rises have slowed this year, but “the risk that a bubble forms is rising”, HSBC economists said last week.
Regulators have warned the banks not to drop lending standards as they strive to write loans amid muted demand for loans from businesses.
Making a fresh assault, Aussie Home Loans yesterday launched a new 4.79 per cent variable rate deal for loans up to $750,000 to build and renovate properties, which are more risky than built housing.
Macquarie, which has been rapidly expanding its mortgage book, is funding Aussie’s new product. In the past fortnight, 71 five-year fixed home loans have been cut by as much as 80 basis points, according to RateCity.