Investors beware: Banks are cutting your term deposit rates

Deposit rates are falling as banks try to wring the most they can out of cheap offshore funding

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

If ever there was a time when investors needed to look beyond term deposits to generate decent returns on their investments, it’s now.

Thanks to the cheapest funding available offshore since the GFC, local Australian banks are cutting their interest rates on term deposits as well as mortgage loans.

According to comparison website, and the Australian Financial Review (AFR), every term deposit has seen its interest rate shaved between October 2013 and now. The median 180-day rate slumped from 3.7% to 3.25%, while the median 90-day rate fell from 3.65% to 3.3%.

And that’s from the usual group of high interest payers, including Westpac Banking Corporation (ASX: WBC) owned St George, Citibank, Bank of Queensland (ASX: BOQ), ING Direct, HSBC and Bankwest – owned by Commonwealth Bank of Australia (ASX: CBA). At those rates, the real return after tax and inflation would be lucky to be 1%.

I don’t know about you, but I’ll take a fully franked dividend yield of 5%, or higher, against those rates any day.

And investors don’t have to turn to the big four banks to earn a yield of more than 5% either. Based on data from Capital IQ, 198 ASX-listed companies are paying a trailing dividend yield of more than 5%.

Add in the franking credits available from most of them, and the gross yield is more than double what you can get on the average term deposit.

As these examples illustrate, you don’t have to buy into tiny or high-risk companies to get that yield. Australian Leaders Fund Limited (ASX: ALF), a listed investment company with a market cap of $354 million, is currently paying an annualised fully franked yield of 7.1%, and holds a wide variety of stocks. And Telstra Corporation Ltd (ASX: TLS) is still yielding 5.5%, fully franked, with plenty of potential for higher dividends in the years ahead.

If you have ever thought that leaving all your cash in a term deposit was the best way to accrue long term wealth, hopefully this article will persuade you – even just a little bit.

Motley Fool writer/analyst Mike King owns shares in Telstra. You can follow Mike on Twitter @TMFKinga

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »