Term deposits to lead the way in interest rate increases

Aerial view of five runners crossing a finish line.

The last few years haven’t been great for savers. After six cash rate cuts in 2019 and 2020, interest rates across the board have fallen, including for home loans, savings accounts and of course term deposits. 

Now, however, it looks like rates might be tentatively increasing and that term deposits will be leading the way.

How are term deposits faring in 2021?

While cuts still outweigh increases for term deposits, Mozo has noted fewer providers lowering rates over the past few months. In March, 32 providers in the Mozo database cut term deposit interest rates, in April that number was 18 and in May 13.

Mozo’s interest rates expert Peter Marshall says, “Overall, the majority of rate changes we see are still cuts. However, it is interesting that in recent months we’ve seen some providers lift term deposit rates.”

Following a mixed bag of cuts and increases in May, the average interest rate for a 12-month term deposit was the same at the end of the month as it was at the beginning: 0.52%* (for a $25,000 deposit). Among providers who increased term deposit rates in May were Suncorp and Summerland Credit Union.

Suncorp increased its term deposit rates by as much as 10 basis points, while Summerland Credit Union topped up its six month and longer terms by 10 to 12 basis points. Perhaps even more notable though, were the term deposit interest rate increases in April. Our research team counted rate increases from nine providers listed in the Mozo database that month. ME Bank was one of these, increasing its four-year term deposit rate by 40 basis points and its five-year term deposit rate by 60 basis points!

Why are term deposit rates increasing?

Marshall says this change in direction for term deposits could be happening for a few reasons. “Term deposit interest rates are set with the future in mind,” he says. This means that although the Reserve Bank lifting the cash rate is still probably a long way off, the expectation that it will be lifted at some point has become more real for banks.

“Some of what we’re seeing is being driven by banks looking ahead,” Marshall says. “The next move from the RBA is likely to be up, not down. So even if it’s not for another 18 months, providers will have to take that into account when setting two-year fixed rates or longer.”

Another reason why banks might be looking to increase rates and attract more deposit customers, Marshall says, is the RBA’s announcement that it will be ceasing its Term Funding Facility (TFF)  this month. The TFF was announced in March 2020 to offer three-year funding to authorised deposit-taking institutions. This includes banks, mutual banks, credit unions and neobanks with ADI licences. The TFF was basically (as Marshall describes it) “a bucket of money that the government made available to authorised deposit taking institutions” at a rate of 0.1%. According to the RBA’s website the TFF had two main objectives:

  • To ‘reduce funding costs for ADIs’ and ‘in turn help reduce interest rates for borrowers’. 
  • To ‘encourage ADIs to support businesses during a difficult period’. As part of the scheme, financial providers were given access to ‘additional low-cost funding’ if they extended their lending to businesses. Especially small and medium-sized businesses.

Marshall says that after June, any additional funding that the banks need to get to make money loans will need to come from other sources. Hence the reason to make term deposits more attractive for savers.

The savings landscape

Marshall adds that while term deposit interest rates are likely to climb in the foreseeable future, the same cannot be said for savings accounts. “I expect that term deposit interest rates will start to exceed interest rates available with savings accounts, at some point in the next six months or so,” Marshall says.

“If you’re prepared to put your money away for a while, you’re probably going to, at least fairly soon, be able to get better rates than you can with savings accounts,” Marshall says. He adds that the future for savers is starting to look up and that term deposits will most likely lead the way for higher interest rates.

Term deposit rates right now

Right now Judo Bank holds the top interest rate position in the Mozo database, for one, two, three, four and five year term deposits.

Interest rates for Judo Bank’s longer terms range from 1.00% p.a. to 1.60% p.a. Head to Mozo’s compare term deposits page to see what other terms are on offer, or check out the deals below.

Compare term deposits - rates updated daily

Search promoted term deposits below or do a full Mozo database search. Advertiser disclosure.
  • Featured Product
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    Term Deposit

    interest rate
    Minimum deposit
    Govt Deposit Guarantee
    0.75% p.a.
    3 months
    $10,000
    Yes up to $250,000

    $0 Set up and no ongoing account-keeping fees. Interest rate depends on balance amount. Optional 3,6,9 or 12 month terms. Balances from $10,000.

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    Term Deposit

    interest rate
    Minimum deposit
    Govt Deposit Guarantee
    0.70% p.a.
    1 year
    $1,000
    Yes up to $250,000

    Terms from 3 to 36 months. A guaranteed rate. No account keeping fees. Enjoy a fixed rate or return. Get a written notice before your deposit matures.

  • placeholder
    Term Deposit

    interest rate
    Minimum deposit
    Govt Deposit Guarantee
    0.70% p.a.
    1 year
    $5,000
    Yes up to $250,000

    Flexible 3 to 60 month terms available. $0 account keeping fees. Flexible interest payments at maturity or annually. Minimum $5,000 deposit.

*Average interest rate for a $25,000, 12-month term deposit, based on term deposits available in the Mozo database, correct on 31 May 2021.

* Different interest rates apply to different amounts or different interest payment frequencies.

^See information about the Mozo Experts Choice Term Deposit Awards

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