What you can learn from historical term deposits rates from the Big Four banks.
With a fixed interest rate and little to no maintenance, a term deposit could be a suitable option if you have spare funds you'd like to park away. Looking at historical term deposit rates can help you understand that rates are constantly changing and how the economy influences the interest rate.
First, let's take a look at today's term deposit interest rates so we can see how these compare to past rates.
See October 2017 term deposit rates below
See historical term deposit rates below.
National Australia Bank (NAB)
Here are some of the term deposit rates NAB had from 2011 through to 2014.
|Date||6 month term||12 months||2 years|
|6/6/11||6.11% p.a||6.18% p.a.||6.30% p.a.|
|2/1/12||5.75%.p.a.||5.24% p.a.||5.21% p.a.|
|4/6/12||4.97% p.a.||5.00%p.a.||5.10% p.a.|
|7/1/13||4.40% p.a.||4.25% p.a.||4.40% p.a.|
|3/6/13||3.98% p.a.||4.00% p.a.||4.20% p.a.|
|6/1/14||3.70% p.a.||3.75% p.a.||3.90% p.a.|
Australian New Zealand Bank (ANZ)
|Date||3 months||12 months||3 years|
|6/8/11||5.60% p.a.||6.00% p.a.||6.20% p.a.|
|20/3/12||5.30% p.a.||5.00% p.a.||5.30% p.a.|
|10/10/13||2.50% p.a.||N/A||3.30% p.a.|
|25/4/14||2.50% p.a.||N/A||3.30% p.a.|
Unfortunately our records only go back to the beginning of 2014.
|Amount $5,000 - $10,000||3 months||12 months||3 years|
|19/7/14||2.50% p.a.||3.30% p.a.||3.70% p.a.|
Commonwealth Bank of Australia
|Amount $10,000 - $49,999||2 months||12 months||5 years|
|15/12/12||4.20% p.a.||4.25% p.a.||4.50% p.a.|
|22/5/2013||3.90% p.a.||3.95% p.a.||4.50% p.a.|
|Amount $10,000-$20,000||6 months||12 months||5 years|
|21/9/2011||3.29% p.a.||3.95% p.a.||3.94% p.a.|
|5/1/2012||2.64% p.a.||2.90% p.a.||2.71% p.a.|
|26/4/2013||1.05% p.a.||1.55% p.a.||1.64% p.a.|
Average term deposit rate history
Overall, rates have fallen since 1985, and can vary considerably within a year.
|1985||11.95% p.a.||12.50% p.a.|
|1990||14.90% p.a.||13.95% p.a.|
|1995||8.50% p.a.||7.00% p.a.|
|2000||5.45% p.a.||5.85% p.a.|
|2005||4.65% p.a.||4.75% p.a.|
|2010||5.95% p.a.||6.00% p.a.|
|2011||6.15% p.a.||6.00% p.a.|
|2012||5.00% p.a.||4.40% p.a.|
|2013||4.15% p.a.||3.70% p.a.|
|2014||3.35% p.a.||3.30% p.a.|
|2015||3.05% p.a.||2.40% p.a.|
|2016||2.45% p.a.||2.35% p.a.|
Interest rates are usually derived from the Cash Rate, determined by the Reserve Bank of Australia on the first Tuesday of every month (except for January). Interest rates are reflective of the cost of borrowing from the big banks and so this cost is usually passed onto the saver.
When the cash rate is low, it's cheaper for the banks to borrow from the Reserve Bank of Australia. Therefore, banks don't have an incentive to offer savers a high interest rate, because it's easier for them to source their funds from the Reserve Bank of Australia.
All is not lost, however. A low cash rate usually means that loan interest rates are lower than usual. So now could be a good time to refinance your home loan or get that personal loan you've been waiting for.
Does this mean that interest rate for term deposits will always be this low?
No, the Cash Rate is reflective of the state of the economy. For example, a low cash rate signals a slow economy, as the Reserve Bank is trying to encourage businesses to borrow funds for investment, which in turn will theoretically expand the economy. As the economy slowly regains its pace, the cash rate will rise as a result, and in effect, so will term deposit interest rates.
What can we learn from looking at historical interest rates?
Looking at historical term deposit rates can help you to assess whether the current economy is favourable for you to open an account. There are many lessons we can take on board from the past, such as:
- Rates will constantly change. The financial market is constantly changing and interest rates do not remain the same. The economy works in a cycle, and with any bank account, interest rates will swing up or down depending where the economy is in that cycle. When choosing a term deposit, look at the current economic situation to determine whether interest rates are rising or falling.
- Banks will offer different options. Features and options of term deposit accounts will vary from lender to lender. Some banks now allow you to increase the interest rate during the term if the interest rates of the lender have increased. Other lenders may also give you the opportunity to access your funds before the account reaches maturity. Make sure you check with your lender if any of these flexible options will incur any fees.
- Interest rates should always be competitive. Since the GFC, interest rates should always be quite competitive, as most banks now get a substantial amount of funds from term deposits. If there are large differences in the interest rates you are comparing, make sure the interest rate is not just an introductory offer that may be lowered after a certain time period.
The history of term deposits
Term deposits have changed quite significantly when compared to their counterparts from the past. There have been some major changes in the modern financial market. Some changes include:
- Banks previously did not have competitive interest rates. Historically, banks relied on wholesale bond markets to secure their funds. This meant that there was not an emphasis on gaining and retaining funds from term deposits. Because the banks were not focused on term deposits, the market was nowhere near as competitive as it is today. Now, banks give extremely competitive interest rates, as much of their funds stem from customers investing their money in term deposit accounts.
- The Global Financial Crisis has changed interest rates. After the impact of the GFC on the Australian economy, the Australian government employed a ‘deposit guarantee’ of up to $1 million, in the event that an Australian bank could not meet its commitments. In return for this security, banks can now offer higher term deposit interest rates to their customers.
- Investors did not always have security. This ‘deposit guarantee’ gave individuals throughout Australia a peace of mind that no one had before. Investors had complete security in terms of their accounts, and so more people began to take interest in opening their own term deposits.
- Smaller lenders were not as competitive. Regional banks, building societies and credit unions got much of their funding through securitisation markets. This meant they did not offer competitive term deposit rates, as they did not rely on these accounts to maintain their funds.