Interest Rates Up? Time To Cash In
Money Magazine - April 2008 Issue - Andrew Willink’s Column
Borrowers may be in a state of despair with interest rates continuing their march northwards, but the cashed-up are rubbing their hands with glee at the prospect of earning more money on their savings.
The on-going credit crunch in the US means that the wholesale money market is a volatile and expensive way to source wholesale lending funds and, as you can appreciate, the banks don’t like paying out more than they have to! That’s why the battle for the deposit dollar has turned to mums and dads here at home. Accessing their own deposit monies saves the banks buying the more expensive wholesale money to lend out. Boosting their deposit base is behind the increase in tempting offers from the financial institutions.
If you are looking for somewhere to park your cash in lieu of purchasing over-priced property or feeding it into the share market slot, the right deposit account will give you a better, more reliable return at present.
In the last two years, we have seen the gap closing between the official cash rate and the average interest rate offered to deposit account holders by the five major banks. This is indicative of the fierce competition out there, as banks trim or even forego, their profit margins in an attempt to win more business.
Term deposits for 12 months are now paying over 8%, while online savings accounts are paying in excess of 7%. With the 25 basis point rate rise announced in March, these figures are expected to go even higher. Historically, a minority of lenders increase their deposit rates at the same time as their loan rates after the announcement of an official cash rate rise. However, the majority of financial institutions immediately increase their lending rates but lag behind when it comes to raising rates on deposit accounts. This timeframe is usually a week or so after rates have moved.
Shopping around on www.ratecity.com.au for the right deposit or savings account and the highest interest rate is essential if you want to make the most of your money. After that, it’s just a case of sitting back while the money rolls in.
Andrew Willink, Executive Chairman
www.ratecity.com.au
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