2011 will be a good year for saving

Savers can look forward to another lucrative year in 2011. Guy Debelle, the Assistant Governor of the Reserve Bank of Australia, told bankers this week that the RBA is predicting that Australians will continue to grow their savings in 2011 and competition for those dollars will remain intense.

On the other end of the spectrum, mortgage loan borrowers will experience more pain in 2011. “In order to boost their share of deposit funding, banks in Australia have competed aggressively in terms of price. “The average cost of the major banks' new deposits is now only slightly below the cash rate, whereas prior to the onset of the financial crisis, deposit rates were about 150 basis points below the cash rate,” said Debelle. The cash rate is currently set at 4.75 percent. Online savings accounts are offering rates in the range of three to six percent or more.
Term deposit rates are even better –some in the range of 6 to 8 percent. “Competition has been strongest for term deposits,” said Debelle. And, even better, it seems that term deposit rates have become slightly more predictable in 2010. In April this year, ASIC released a report on term deposit pricing. That report criticised banks for rolling term deposit holders onto a lower rate at the end of the term. Banks often change their pricing on term deposits as they need quick cash.

Almost half of term deposit holders end up in a lower rate at the end of their term, said ASIC. Since then pricing variations from month to month seem to have flattened out significantly. In fact term deposit rates have become more predictable since mid 2010 than any time since the GFC hit in 2008.