Coronavirus and share market crash: Is it time to open a term deposit?
While the stock market continues to fall and recession fears ramp up, we're seeing term deposit rates increase for the first time in years.
As the coronavirus pandemic continues to spread around the world and lockdown efforts ramp up in Australia, it hasn't been a good time on the share market. In just a few short weeks, the ASX 200 has fallen more than 30% and remains extremely volatile. But term deposits, on the other hand, are going up for the first time in years.
The RBA has made several cuts to the official cash rate over the past 12 months, and as a result, we've seen banks continually cut interest rates on both savings accounts and term deposits to historic lows. However, we've recently seen a few banks lift their term deposit rates, particularly for shorter terms.
Which term deposit rates have gone up?
Here are a few banks that have lifted the fixed interest rates on some of their term lengths in response to coronavirus and the economic impact it's having in Australia.
| Term deposit | Old rate | New rate |
|---|---|---|
| Judo Bank 3 month term deposit | 1.8% p.a. | 2.05% p.a. |
| Judo Bank 12 month term deposit | 1.95% p.a. | 2.05% p.a. |
| NAB 10 month term deposit | 0.90% p.a. | 1.75% p.a. |
| Rabobank 12 month term deposit | 1.25% p.a. | 1.70% p.a. |
| AMP 6 month term deposit | 1.35% p.a. | 1.60% p.a. |
| CUA 3 month term deposit | 1.45% p.a. | 1.60% p.a. |
| ING 6 month term deposit | 1.55% p.a. | 1.80% p.a. |
Increased term deposit rates are just one of the stimulus measures banks are offering, along with mortgage repayment support and personal loan repayment support.
Is now a good time to open a term deposit?
The good thing about term deposits is they offer fixed interest rates for the life of the term, meaning they won't change. Having a fixed interest rate is a pretty good benefit in the current climate. We've already seen the RBA drop the cash rate twice in March, and there's a strong chance it could cut the cash rate again at its next meeting in early April down to a record low of 0%.
Plus, while no one knows exactly what the share market will do, there's a good argument that it'll continue to fall (or at least remain very volatile) until we start to see a decrease in new coronavirus cases or a vaccine created. But as Australia is only at the start of our journey with this pandemic and full lockdown measures are yet to be introduced, it appears we've got a while to go yet.
Lastly, term deposits are low-risk products that still offer a return on your money while also being protected by the Australian Government Guarantee. This means that in times of economic turmoil, if the bank were to fail, your deposit up to $250,000 would be protected. This isn't the case with other products, like shares.
However, there are a few things to consider before opening a term deposit. The most pressing is that your money is locked in for the life of the term and you're unable to access it. While this could be a great motivation to save, it might not be so great if you were to find yourself suddenly unemployed and in need of the cash. So if you're going to open a term deposit, it could be wise to keep an emergency savings fund easily available just in case.
The other thing to consider is that you can get yourself a slightly higher interest rate with a high interest savings account. But the downside here is that savings accounts have variable interest rates, so they could change at any time.
If you think a term deposit is right for you, head to our term deposits guide to compare the latest rates.
