The death of high interest savings accounts

New banking regulations coming into effect will likely mean the end of high interest online deposit accounts – and another reason to invest in shares.

New banking rules starting in 2015, called Basel III, will require the Australian Prudential Regulatory Authority (APRA) to start discriminating between ‘good’ and ‘bad’ deposits – according to the Australian Financial Review (AFR). Popular online savings products offered by the likes of ING Direct, National Australia Bank’s (ASX: NAB) Ubank and Commonwealth Bank of Australia’s (ASX: CBA) Bankwest, will either disappear or become less attractive, says the AFR.

Investors in term deposits will be legally locked in, and won’t have the right to exit them unless the bank agrees, and you will be charged a fee for doing so – materially greater than the loss of interest. The moves are designed so that long-term deposits will rank as ‘stable’, while online savings accounts will be ranked as ‘unstable’, as APRA tries to curb liquidity risks.

With a large percentage of the big four banks’ funding coming from deposits, they will want to ensure that they have reliable, stable sources of funding – you can see the direction they are being pushed in.

That will create a problem for the banks including Westpac Banking Corporation (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ).  The banks will be  competing for ‘secure’ deposits in a dwindling pool of depositors wanting flexibility to access their money when they want, and high interest rates. On the other hand, the banks will want long-term deposits on which they don’t have to pay high interest.

The Foolish bottom line

With many blue-chip Australian companies paying dividend yields of more than you can get in a high interest account – and more once you consider franking credits – it makes sense for many investors to consider a move into the sharemarket – and that’s where the Motley Fool can help.

If you only invest in one company this year, make it our “Top Stock for 2012-13”. Operating in two hot markets — one set to double by 2012, the other predicted to grow 5x over the next five years — this stock is a solid growth play that also boasts strong recurring revenue, zero debt, and lots of cash. Get its name and full research case in this brand-new FREE report.

More reading

Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.  The Motley Fool ’s purpose is to help the world invest, better.  Take Stock  is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  Click here now  to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.