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High deposit rates are there if you know how

Here's a column for the forgotten people in all this endless talk about bringing down mortgage rates. I'm talking about the majority of Australians, plenty of whom don't have a mortgage, who have money set aside for the future in term deposits and savings accounts.

Certainly, very few of these people have the six-figure sums on deposit that mortgage holders have owing.

The average term deposit is a more modest $72,000.

But self-funded retirees, in particular, are usually the big losers from rate cuts, as they depend on interest for at least some of their regular income.

And while savers will undoubtedly benefit from any boost to economic growth triggered by the latest rate cut, as soon as the banks pass on that rate cut to their deposits products it means an immediate drop in earnings on interest-based investments.

However, this is a good news column, at least for the fleet of foot.


The traditional pattern of the banks on passing rate cuts to depositors like Usain Bolt springing out of the starting blocks hasn't happened this time around.

In fact, thanks to those self-same short-term funding pressures that have led the banks to cop so much flak for not passing on full Reserve Bank cuts to their borrowers, there are still plenty of tasty deals around for savers.

At least for now.

According to analysis by research company RateCity before this week's rate cut, while the big four banks had passed on between 0.36 and 0.4 percentage points of the Reserve Bank's 0.5 per cent cuts since November, rates on three-month term deposits of $50,000 had come down only 0.2 per cent.

Adam Beu, a financial analyst with Canstar, says there are still plenty of term deposits offering rates of 5 per cent or more if you're prepared to lock in your money now.

As of Wednesday night, one-year deposits on $25,000 were as high as 5.9 per cent with SGE Credit Union and 6.11 per cent for five years with Rabobank (Beu admits he doesn't think that one will last).

Five-year rates of 6.2 per cent were available through specialist term-deposit websites that often receive short-term ''specials''.

Even for one-month term deposits, up to 5.2 per cent was still available and the best rates were consistently high across all time periods. In a more normal market you'd expect longer-term rates to be higher to reflect the ''cost'' of locking away your money.

But don't write a thank-you note to your bank just yet. While pressures in global markets have led local financial institutions to compete more for retail deposits, they can be sneaky about the deals. Aware that retail deposits are ''sticky'' - once we've shopped around for a good rate we're apt to be complacent and leave our money there - a good rate today doesn't mean you'll get a good deal when it comes time to roll that deposit over.

RateCity has also estimated that term-deposit holders miss out on an estimated $4 billion of interest per year by allowing term-deposit accounts to roll over, rather than shop for a better deal.

By allowing this, we let the banks get away with ''bait marketing'': they advertise a high rate for a particular period - one month, three months or something less standard, such as 100 days - but that promotional period changes.

If you take out a one-month term deposit at 5 per cent plus, you may well be able to get a similar rate when the term deposit matures. But chances are, by then that attractive rate will be offered over a different time period - maybe 60 days.

Consumers assume the new rate will be a good deal but the banks gain by paying you less and using a new promotional rate to attract a fresh lot of customers.

This isn't just an issue with term deposits.

The majority of the ''top'' rates for online savings accounts listed by RateCity apply for a limited period for new customers.

Beu says the base rate for most of these accounts (what existing customers get) is generally the official cash rate, so the next few weeks are likely to see base rates moving down but some fancy work in promoting higher promotional or honeymoon rates.

Over time, both promotional and other deposit rates will have to edge down - especially if this is not the last of the official rate cuts.

Indeed, research by FIIG Securities on the last period when the Reserve Bank brought about a rapid decline in the cash rate shows the banks were all too happy to pay customers less.

On July 1, 2008, it found the average term-deposit rate offered by the big four banks was 7.9 per cent and the cash rate, 7.25 per cent.

By the end of 2008, the cash rate had dropped by 3 percentage points to 4.25 but the average term-deposit rate had fallen even further.

It was down 3.53 percentage points to 4.37 per cent.

The competitive nature of the current market means we're not likely to see any big or fast cuts because of this week's Reserve Bank reduction.

But financial institutions are not going to pay more for deposits than they have to.

Savers have an opening to lock in those more attractive deals now, however that doesn't just apply to new savings.

If you already have money on deposit, particularly if it is nearing maturity, it is more important than ever to shop around for a better deal rather than allow inertia to take over and simply roll over into whatever new rate is being offered.

Beu says many institutions will also reinstate their promotional rate on savings accounts if customers demand it.

But the majority don't ask.

Twitter: @sampsonsmh