Why Banks Have Reduced Their Interest Rates on Some Term Deposits

There is a constant clamor asking people to save, especially during these hard times. It is, therefore, disheartening to discover that the big four banks are lowering their interest rates on a few fixed-term deposits. Banks like NAB, Westpac and ANZ have reduced their interest rates on selected class of term deposits by 0.1 and 0.5 percent just this last week. The Commonwealth Bank slashed its rate for eight months by 0.3 percent last month. This is hardly encouraging news to those who wish to save and earn from it.

These big four are now being criticized for reducing the return of investments to their clients. It seems ill-timed for these banks to move in this direction when they have just posted a combined profit of $20 billion for this year.

These banks have not even redeemed themselves from the previous claim that they have profited a great deal from excessive interest rates on loans. They seemed to have taken advantage of the recession, where more and more people were seeking and availing loans for various purposes.

Consumers are now being advised by various groups to diligently monitor their term deposits and not just readily extend their term without knowing the interest rates. It is imperative that consumers need to canvass for those term deposits that will yield them higher profits.

The banks’ decision may be because their priorities are their shareholders and customers only coming in second. Nonetheless, banks need to capture the loyalty of the people so that they will remain doing business with them instead of with other banks. This move to raise interest rates does not seem to motivate the people. According to the banks, the term deposit rates are at an all time high, which means that the people are still benefiting from their investment despite the reduction.

These banks further claim that the term deposits are consistently reviewed and set independently of the cash rate charges set by the Reserve Bank. This is not so with your regular savings account, which the RBA sets. This news follows the recent trend where many Australians took advantage of the various special promos offered for term deposits in the last couple of months.

Some financial analysts claim that global factors can be blamed because banks will need to raise money for their offshore accounts. This fund-raising by the banks accounts for the fluctuations in fixed-term deposit rates. They are quick to claim, however, that some terms have seen increased rates.

There are some speculations that the
changes were aimed to encourage customers to having term deposits for an even longer period. Doing so will minimize the dependence of banks on overseas funding, which may fluctuate from time to time. Furthermore, deposit holders with existing accounts are no longer affected by these changes in interest rates.

The only way to save and earn big from it is to plan out just how long you can go without your cash for a longer termed deposit may be the best alternative for you. Remember that you may incur penalties if you withdraw the cash before maturity.