Why is low inflation good for savers? Essentially, the reason for that is that low inflation translates to a higher real rate of return on cash savings, as the purchasing power of the funds is not being eaten away by inflation.
“If you’re receiving, say, a three percent return on your cash savings but inflation is running at three percent, the real return is nothing. But if you’re receiving a three percent interest rate against inflation of just 1.3 percent, at least there’s a two percent margin left over,” said Canstar Editor in Chief, Justine Davies.
Currently, based on the term deposit products listed on Canstar’s database, the maximum term deposit interest rates for a $50,000 deposit are as follows:
|Term||Maximum rate||Inflation||Return before tax|
Source: www.canstar.com.au Based on the terms available for the amount of $50,000, products on Canstar’s database at 16/10/16
One note of caution for savers: the interest rate premium being offered to customers who lock into a longer-term term deposit is quite narrow, which indicate expectation of future cash rate reductions.