Lenders rate and see
Most lenders are unlikely to drop their term-deposit interest rates by the full 0.5 percentage point cut to the cash rate. They need to compete for depositors' money - their cheapest source of funding - as they move to be less dependent on overseas wholesale borrowings.
Term deposits have won favour with investors, particularly retirees who have been able to earn good interest rates while sharemarkets have struggled.
ANZ has cut its term deposit rates by about 0.2 percentage points on some of its terms up to five years. NAB has cut 0.1 percentage points from its longer terms and from its six-month term. At the time of writing, Westpac had left its six-month rate unchanged, while trimming rates on some other terms.
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These moves are likely to be an indication of the sorts of cuts in term-deposit rates that investors can expect. Most of the new rates are sitting between about 4.5 per cent and 5.5 per cent over all terms. A year ago, rates of up to 7 per cent were available.
Arab Bank reduced its interest rates by up to 0.9 percentage points. The new rates are 4.9 per cent on six months and 5.5 per cent on three years.
But Andrew Duncanson, the research and insights director at bank products comparison website Mozo.com.au, says Arab Bank is likely to be an ''outlier'' and is likely cutting back on its aggressively-priced ''specials''.
Some of the banks, buildings societies and credit unions will wait a while longer before they reduce their term-deposit rates. ''My feeling is that they do not want to be seen as cutting rates on term deposits all that quickly,'' Grant Goodier, the managing director of term-deposit broker The Term Deposit Shop, says.
Goodier is expecting cuts in term deposit rates, even over time, to be small.
''There will be some slight downward pressure overall, but it will not be anywhere near the full 50 basis points,'' he says. Financial institutions want to raise more money from depositors and rely less on overseas wholesale borrowings, he says. ''That is creating competition for retail deposits.''
Duncanson says the most intense competition is in the shorter term deposits, especially over six months - the most popular term with investors.
The best rates are to be found on deposit terms of six months or less, rather than longer one- and two-year terms. Term-deposit rates are on their way down with most market watchers believing there will be at least one more cut of 0.25 percentage points in the cash rate, possibly two this year.
It may pay investors to act sooner than later. Many institutions have not moved yet to cut their term-deposit rates, investors have an opportunity to lock-in a good rate, but they have to act fast, he says. Duncanson says UBank, for example, which is owned by NAB, has some ''really attractive'' rates and has done for some time.
''I think that many competitors are looking to see what UBank does with its term-deposit rates before setting their rates,'' Duncanson says.
At the time of writing, Mozo data shows Heritage Bank has a market-leading rate of 5.7 per cent on its six-month term deposit, followed by ME Bank with a six-month rate of 5.65 per cent based on a $25,000 deposit.