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2 stocks to buy as the big four banks drop deposit interest rates even further

Australian Money
Credit : Will

Earning income for term deposit savers is getting even tougher. The big four banks are cutting deposit account interest rates by more than the RBA interest rate cuts.

Recently, the RBA lowered its cash target rate 0.25% to 2.25%, which would already affect fixed income investors and bank savers. On top of that, The Australian Financial Review reported the big four banks dropped deposit interest rates further, some as much as an extra 0.2%.

To see for myself, I jumped onto the websites of each of the four banks. For a term deposit of $50,000 for 60 months (5 years), the four banks offered the rates below-

Term Deposit Interest Rate
CBA 3.10%
ANZ 3.00%
Westpac 3.20%
NAB 3.00%

Usually you get the best rates for the longer terms. Still, those rates are low compared to some stock yields available right now.

As early as today, 7 April, the RBA may cut interest rates even more. Economic pressure coming from falling iron ore and oil prices may reduce expected corporate taxes and royalties for the federal budget. Will more interest rate cuts kick start the economy, or is it just buying time and breathing space? I guess we’re going to find out.

The downward rate pressure will also push more of these bank savers to search out yield in the share market.

They will not only need relatively high yields but steady dividend payers. I would suggest the following stocks.

Suncorp Group Ltd (ASX: SUN) offers a whopping 6.1% fully franked yield and is reasonably priced for the expected growth. A big plus for the insurer and banker is its plans to return surplus capital to shareholders over the coming years. That could mean a continuation of special dividend payments along with regular dividend growth. The stock has pulled back from earlier highs, so it may be good time to add Suncorp to your portfolio.

IOOF Holdings Limited (ASX: IFL) also may give investors a good balance between growth and dividend income. The investment portfolio administrator provides various financial services for wealth management. The stock pays a 4.8% yield fully franked and is trading at 18 times forward earnings.  Analysts forecast both annual earnings and dividends to grow in the high single digits over the next few years. Dividends have been trending upward over the past five years, so investors can possibly look forward to continued income stability.

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Returns As of 6th October 2020

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policyThis article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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