In a surprise May move the Reserve Bank (RBA) cut Australia’s official cash rate by 25 basis points, to just 1.75%, citing lower-than-expected inflationary pressures.
“Inflation has been quite low for some time and recent data were unexpectedly low. While the quarterly data contain some temporary factors, these results, together with ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast,” said RBA Governor, Glenn Stevens.
“In reaching today’s decision, the Board took careful note of developments in the housing market, where indications are that the effects of supervisory measures are strengthening lending standards and that price pressures have tended to abate. At present, the potential risks of lower interest rates in this area are less than they were a year ago.”
What does that mean for your term deposit?
A number of financial institutions, including the Big 4 banks, were quick to announce that they were passing some or all of the cash rate cut on to borrowers, and chances are those rate cuts will also be passed on to savers.
Currently on CANSTAR’s database the average 12 month term deposit rate is a modest 2.69%. A 25 basis point cut to that average would provide a return of just 2.44%. This would potentially make the following difference in annual return on a cash investment.
|Deposit Amount||Annual interest reduction|
Source: Canstar. Based on a 12 month term deposit, interest at maturity.
National Seniors Australia called the RBA decision to cut rates – an all-time record low and the 11th consecutive cut – a low blow for seniors.
“Many pensioners and self-funded retirees hold term deposits because of the security and peace of mind they represent,” National Seniors chief executive Michael O’Neill said.
“These same people are also facing the double whammy of cuts to their pension or part pension when eligibility rules change from January next year.
“For too many, the prospect of another hit to their dwindling incomes does not fill them with confidence.”