Look out savers! Big four banks cut term deposit rates

Source: Australian Broadcasting Corporation

If savers thought they had seen the last of the bad news, they had better get used to lower interest rates from the big four banks.

According to The Australian, three of the big four of Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) have sliced 25 basis points, or 0.25% off their online saver interest rates.

While the banks increased the interest rates on their longer term (one and three-year) term deposits last month, the majority of term deposits and online savings accounts have seen cuts – after the RBA cut the official cash rate to 1.5%.

The Australian reports that ANZ, CBA and Westpac have cut their online saver account interest rates by 25 basis points to 2.01%, 1.95% and 1.85% respectively. NAB has held its Reward Saver interest rate steady at 2.95%.

Deposits are a major source of bank funding, particularly for the big four banks, and there was $538 billion sitting in term deposits with the banks at the end of July 2016 according to the RBA’s most recent report.

But cutting interest rates could see customers take their cash out and go elsewhere – particularly when the banks’ shares are offering fully franked dividend yields of more than 5% – or over 7% grossed up.

The banks also faced higher wholesale funding costs and potentially higher capital requirements – which means they need to claw back some of the money they are paying out.

Foolish takeaway

If you have significant amounts of cash in your bank account or short term deposits, now might be the perfect time to look elsewhere for a better-returning asset.

3 Rotten Shares to Sell, and 1 to Buy Today

After a double-digit rally for the ASX since 2016 lows, investors should be on high alert. You'll find a full rundown below of 3 shares we think you should avoid today plus one top pick worth buying, even if the market turns south and the RBA keeps rates at an "emergency low." Simply click here to uncover these stocks. No credit card required.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks 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 policy. 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.