Plonk

Term deposits and savings thread

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Thought I would start a term deposit and savings thread. I'll update it if anything interesting is happening. I'll put the highest rates only, mostly, because otherwise it's too boring, or any article links that may lead to the current savings climate. As we know, savings rates are now pretty much at parity with home loan rates. In this article discussing he RBA's financial Stability Review, it is mentioned that some TD rates are higher than home loan rates- for the first time in two decades. shocking.gifhttp://www.theaustralian.com.au/business/b...x-1225845499032 Something's gotta give? Cheaper home loans? Rarely. Lower savings rates? More likely. Actually, I'm not sure. The notion in the past was that savings would never make money, but now, it's nice to know that we could either get a cheap money mortgage (top left table) http://www.ratecity.com.au/home-loans/ or just keep saving (again, top left corner table): http://www.ratecity.com.au/savings-accounts/ and hope that house prices don't rise too much. Protip for rate city sites (part of Canstar Cannex): go to the bottom right of the pages for savings and TD rates, and they put in each and every change- they don't add all of these to the twitter site http://twitter.com/Canstar_rates

Many of us from GHPC are UBank customers. We're getting 5.85% variable that matches ING Direct, but that doesn't match Citibank's rate of 5.88%. Despite consistent nagging on twitter and all over the net, UBank refuse to put Citi's account on it's rate assurance list. Speaking of rate assurance, it finishes at the end of this month- a few days away. UBank are twittering madly about wanting the best outcome for customers on the rate assurance, which makes me think they mean "no" in twittaganda.

Meanwhile, I am liking Raboplus's 6-month TD of 6.31% http://www.raboplus.com.au/savings/term_deposits/default.aspx Whilst we know that IR's are in a rising climate, savings/OCR/home loan rates are just out of whack. Over a year ago, Suncorp had the highest rate of 6% for a 3-year deposit and I thought that was high. Now, we can get 6.31% on a 6 month term. Tempting.

If S&S'ers see any special deals, chuck 'em in. I am always interested in seeing new deals. As for now, UBank is a go-go.

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Term deposit strategies in here too?

In an environment where interest rates are staying flat or rising I like to use the following strategy (although am not at the moment as "investing" in a mortgage has a better return):

1. Every 6 days for 3 months create a new 90 day term deposit with $X

2. After 90 days you will have 15 term deposits which mature every 6 days, Roll each of those into a new 180 day term compounding the interest.

3. After 180 days you will have no TD maturing, start creating new term deposits every 6 days with $X and a 180 day term

You now have 30 x 180day TD's with a maturing frequency of 6 days.

4. After 270 days you will have your first 180's start to mature, roll them with compounded interest to the best period you can see.

  • If that is greater than 180 days you will hit an empty period in 180 days at which point you start filling the empties following the above scheme.
  • If it is the same then add your weekly $X to each rollover
  • If it is shorter then add your $X to each rollover but be aware that in a short period of time you will be combining 2 x 180's + $X into a single 90

The advantages of the strategy are that you don't need to be a timing expert, just be aware of interest rate general movements, flat or up probably means keep going, start down means stop rolling them. You also start doing a mindless savings routine and, best of all, you think of it as saving $X a week but you are actually saving more because every few weeks you have 2 x $X to put in).

The disadvantages are that you can't escape super quick with some TD's (ING allowed me to call them all in with interest pro rata but some others don't). Also you have to pay tax on the interest. Although does anyone know if tax is applicable on TD's of greater than a year? Seems to me it would be halved but I don't really know.

The work involved is pretty minimal, about 5 minutes a week.

I thought this one up on my own but I believe it bears strong resemblance to a bond ladder (although that is from what someone else said so don't be too angry if it isn't).

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Thanks, tor. The TD "ladder" approach is certainly a good one. Unfortunately, all 3 month TD's are lower than at-call rates. The top 5 on ratecity pay from a top of 5.7% to the 5th highest at 5.26%. At Ubank, it's 5.85% at call. As at-call calculates daily and pays monthly, I am figuring that base rate is closer to 5.95% pa. Your approach with 6 month TD's would probably be the go (they only start at that point to be higher than at-call). Maths is my not so good point, so I'd have to read your post a few times to get it, but it's a good strategy.

As to the tax implications of TD's, I saw this bloke say something on the site ozbargain.com.au (which is a great site- not just cheap deals, but a politic to boot and some smart minds):

http://www.ozbargain.com.au/search/node/financial?page=1

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You should have named the thread "Got Cash?" Plonk. Or maybe "Got Savings?".

Why do term deposits vary so much between differing monthly time scales? You can get 6.25% for between 8-9 months with BOQ but only 3.4% for 7-8 months?

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You should have named the thread "Got Cash?" Plonk. Or maybe "Got Savings?".

Purely for the purpose of being able to find it later, clown. "Term deposits" has more of a ring to it than other titles I can remember later when i wanna find something. Besides, if I put "got cash?" some might say put it into real estate. mellow.gif:P

Why do term deposits vary so much between differing monthly time scales? You can get 6.25% for between 8-9 months with BOQ but only 3.4% for 7-8 months?

I don't know- a lot of the rates have no alignment with time. In simpler times, they probably just went up with the time period, but now, I think banks target a particular rate for a particular time, for their particular no reason. 6-monthly- even though only about 40 points over at-call rates, are only looking attractive because some honeymoon at-call rates might expire, and I am just not sure savers' rates will continue their happy incline. Maybe it was the GFC that caused banks to offer high rates to get savings. Now that people trust banks more (well, I do anyway), they can be a bit callous again.

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I don't know- a lot of the rates have no alignment with time. In simpler times, they probably just went up with the time period, but now, I think banks target a particular rate for a particular time, for their particular no reason.

Banks target a particular rate for a particular time because they have particular loans to cover until the expiry of the loans. Not all loans are the same size, signed on the same day and paid off at the same rate. That is why the rates are not linear as time extends into the future. Loan books are complex and require complex deposit structures to match.

Edited by sydney3000

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Term deposit strategies in here too?

In an environment where interest rates are staying flat or rising I like to use the following strategy (although am not at the moment as "investing" in a mortgage has a better return):

1. Every 6 days for 3 months create a new 90 day term deposit with $X

2. After 90 days you will have 15 term deposits which mature every 6 days, Roll each of those into a new 180 day term compounding the interest.

3. After 180 days you will have no TD maturing, start creating new term deposits every 6 days with $X and a 180 day term

You now have 30 x 180day TD's with a maturing frequency of 6 days.

4. After 270 days you will have your first 180's start to mature, roll them with compounded interest to the best period you can see.

  • If that is greater than 180 days you will hit an empty period in 180 days at which point you start filling the empties following the above scheme.
  • If it is the same then add your weekly $X to each rollover
  • If it is shorter then add your $X to each rollover but be aware that in a short period of time you will be combining 2 x 180's + $X into a single 90

The advantages of the strategy are that you don't need to be a timing expert, just be aware of interest rate general movements, flat or up probably means keep going, start down means stop rolling them. You also start doing a mindless savings routine and, best of all, you think of it as saving $X a week but you are actually saving more because every few weeks you have 2 x $X to put in).

The disadvantages are that you can't escape super quick with some TD's (ING allowed me to call them all in with interest pro rata but some others don't). Also you have to pay tax on the interest. Although does anyone know if tax is applicable on TD's of greater than a year? Seems to me it would be halved but I don't really know.

The work involved is pretty minimal, about 5 minutes a week.

I thought this one up on my own but I believe it bears strong resemblance to a bond ladder (although that is from what someone else said so don't be too angry if it isn't).

Jesus, Tor!

That is a great little system, but with TD's starting at $5k or $10k for the decent rates of return, your income must be just a little higher than mine, I suspect!

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Jesus, Tor!

That is a great little system, but with TD's starting at $5k or $10k for the decent rates of return, your income must be just a little higher than mine, I suspect!

You start where you can and work from there. If you can put in $500 a week you rack up the numbers pretty quick and then have a good set of data and dollars for a discussion regarding rates. After 10 weeks you have the 5K in there. Even at $100 a week you have the 5K with them after a year.

When you present the plan to an account manager they normally understand quite quickly, when you show a year or so's data of you actually doing it they become quite interested.

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Probably a no brainer but just to let people know term deposits are sometimes simple interest, i.e. interest paid at maturity. So you need an extra 0.15% odd to break even with the compounding interest in an at call account when interest rates are at 5.85%. That is if at call = 5.85% then you want 6.00% in a 12 month term to break even at the end of 12 months assuming the at call is compounding monthly and the term is payable on expiry.

Clearly if the term is shorter then the premium required is less before it is worth going for term.

Also this is probably worth pinning.

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If S&S'ers see any special deals, chuck 'em in. I am always interested in seeing new deals. As for now, UBank is a go-go.

problem with ubank is that you need a mobile. for the odd dinosaur out there (me) who refuses to jump on the mobile bandwagon, rabo is probably the best choice with 5.75%. plus you get the nifty secret decoder device. i wonder how that thing works anyway.... programmed with a set of randomly selected numbers that are tied to the account?

tor's TD ladder is intriguing, and the tax consequences of TDs are also something i hadn't considered. will have to start getting 6 month tds in january from now on.

since we have a joint account and my wife is a stay at home mum 1/2 of our interest is essentially tax free which helps a bit. we get slaughtered on the other half, of course, but that's life i suppose.

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... plus you get the nifty secret decoder device. i wonder how that thing works anyway.... programmed with a set of randomly selected numbers that are tied to the account?

Probably a variation of the RSA tokens we use for remote access:

http://en.wikipedia.org/wiki/SecurID

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rabo is probably the best choice with 5.75%. plus you get the nifty secret decoder device.

The device is clunky and doesn't even have the ability to attach it to a keychain. They come in credit card size and Rabobank should have chosen one of those. I wish all financial institutions standardized on one common SecurID even though that would open a new security risk.

Edited by sydney3000

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The device is clunky and doesn't even have the ability to attach it to a keychain. They come in credit card size and Rabobank should have chosen one of those. I wish all financial institutions standardized on one common SecurID even though that would open a new security risk.

i haven't found that to be an issue. its not something i really want to be carrying about with me. and probably not something i want sitting in my wallet. i don't find it particularly burdensome, but maybe that's just me.

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Have noticed that U-Bank is now paying 5.95% at call with a regular savings program. That 7.25% looks good tin, but I don't wan't to tie my money up for that long. However, the 6.31% 6 month one is tempting, and might be worth putting half my savings there, as I can't see myself purchasing in that timeframe.

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FWIW -

Term deposit tricks

Annette Sampson

March 17, 2010

The strategy To get a good deal on term deposits.

That's not so hard, surely? There's no shortage of good deals being advertised. Yep, we've said it before but the banks are your new best friends if you've got money to deposit. They've discovered the hard way that getting money from people like you and me is a lot easier and cheaper than raising it on global wholesale markets.

Web sites including infochoice.com.au and ratecity.com.au can give you the rundown on the best rates for various terms. They change daily but last week you could get rates as high as 5.76 per cent on 90-day term deposits (with UBank) and 6.5 per cent for one year (MECU and Bank of Cyprus), according to RateCity. If you were prepared to lock your money away for three years, you could get an interest rate of more than 7 per cent.

But like any fair-weather friendship, the deals aren't always as good as they seem. A recent report by the Australian Securities and Investments Commission found many institutions engage in "dual pricing", where they promote one or two highly attractive term deposit rates but offer less competitive rates on other terms.

Why is that a problem? Surely I can just opt for the more attractive deal?

If you're prepared to shop around, it's not a problem immediately. If you wanted somewhere to park some cash for six months and the 90-day rate was much more attractive than the 180-day rate, presumably you'd pick the 90-day rate and simply renew or "roll over" your term deposit for another 90 days once it had matured.

But there's the problem. You may find that when it's time to roll over your term deposit, the new 90-day rate is substantially lower than the original. And if you just roll over automatically, assuming the new rate will be as good as the old, you could find yourself locked into a low-yielding investment.

Surely the differences aren't that great?

You reckon? ASIC found seven of the eight institutions it surveyed had dual pricing. Typically between two and four of the terms being offered had high rates and the rest of the terms were offered with low rates. The low rates were 42 per cent lower with banks and 18 per cent lower for mutuals such as credit unions. On average, the low rates were also 37 per cent lower than at-call interest rates for banks and 8 per cent lower for mutuals - giving those investors who chose the term deposits no reward at all for locking in their money for a fixed term.

For the seven institutions with dual pricing, ASIC found almost all the new term deposits opened were at high interest rates. But almost half the money rolled over at the end of the term went by default into low interest rate deposits - although that percentage varied widely between institutions.

ASIC says investors roll over an average of five times before withdrawing money.

How do I avoid getting caught?

The ASIC report shows the importance of shopping around when a term deposit matures, rather than electing an automatic roll over.

ASIC found institutions typically structure their term deposits so that, unless otherwise instructed by the investor, a maturing term deposit rolls over into a new term deposit for the same term at the prevailing interest rate. Most institutions will contact you when your deposit matures (or is coming up to maturity) but ASIC found only one of the eight institutions mentioned the new interest rate that would be paid in its pre-maturity letter while another phoned investors before maturity to discuss the interest rates available. Others included a current interest rate schedule with their letter. Most institutions also offer a "grace period" where you can opt out of the new term but ASIC has recommended better disclosure of both dual interest rates and what happens at maturity. On the upside, chances are if the rate you're being offered isn't competitive, your financial institution will have a more attractive rate on offer for a different term. But it's also worth checking out what the competition has to offer.

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...But there's the problem. You may find that when it's time to roll over your term deposit, the new 90-day rate is substantially lower than the original. And if you just roll over automatically, assuming the new rate will be as good as the old, you could find yourself locked into a low-yielding investment...

This is one of the things my system was largely about. By spreading your rollover periods out into small portions of your money you have more flexibility to cater for this occurrence while still (hopefully) having enough balance that your entire withdrawal can be used as a bargaining point for a better rate.

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This is one of the things my system was largely about. By spreading your rollover periods out into small portions of your money you have more flexibility to cater for this occurrence while still (hopefully) having enough balance that your entire withdrawal can be used as a bargaining point for a better rate.

Bargaining can be seriously worth-while. I have used it often, generally with good results, altho I am finding banks more resistant than they used to be. I think managers have less autonomy than they used to.

I am not usually a particularly aggressive person, but banks give me the sh!ts...

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In a rising IR limate, it's probably a risk-free strategy. The days of westpac giving 8% over 5 years is gone- at least for now. Bank of Cyprus is still giving 8% over 5 years. Here's their rates- tiered for amount:

http://www.bankofcyprus.com.au/boc/index.php?navi=Current Interest Rates

5 years 6.60% 7.20% 7.80% 7.85% 7.90% 8.00%_________________

I think UBank are reviewing their rates today, as they do on a Friday. Rate assurance is finished, but they might give us a tidbit to keep their customers quiet. UBank is all about using social media- an article I read said, "Does your bank want to be your BFF?" That sums it up really. If we get a .1% increase, I'll be happy enough. If we get any more than that, I'll be astonished- happy, but astonished. I'm waiting for the smaller banks and providers to up the ante if we're about to get a deposit war. deposit rates were 8% fo 1-year when home loan rates were about 9.36%, but it's a different climate- we might even get their earlier- or may not get there at all sadwalk.gif . Fun times for savers.

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Bargaining can be seriously worth-while. I have used it often, generally with good results, altho I am finding banks more resistant than they used to be. I think managers have less autonomy than they used to.

I am not usually a particularly aggressive person, but banks give me the sh!ts...

Suncorp, for example, give mire interest on amounts over 100k, so that's negotiable, I guess.

With places like UBank, they stick to their amount, but if people want to get the 5.95% but have more than 150k, they tell customers to just open two accounts and keep them both under 150k. Banks are getting sneaky.

I like banks like Investec (from the term deposit page). If you ring them up, their Treasury *has* in the past (but may not now) offer about .5% over the rates aedvertised on termdeposit.com. They are unadvertised there- but some of the highest rates are theirs. Investec seem to have lost some prominence, but a call to their Treasury would be interesting. They had the highest rates with TD in the past.

At the moment, the compound interest from online accounts is quite good. That's always the trade-off with TD's.

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My post two post prior to this one should have said, "getting there"- not "their". Where's my edit button, Moddies? :P

The highest 1-year TD is Teachers' Credit Union. They would appreciate the apostrophe- as teachers- but clearly a teacher didn't establish the website, which has no apostrophe! so, 12-months @ 6.8% (tiered for 50k and above. For below 50k, it's 6.01%). This one doesn;t shoew up clearly on ratecity, but is on infochoice.com.au. To join TCU, you have to bea teacher, have been a teacher, worked with a teacher or just know a teacher :) 6 degrees of separation they call it on the site.

They have home loans at 6.29 (comparison rate), so you can make money on a TD and chuck it on the mortgage. This is ODD, peoples- at some point, savers are going to be hammered.

Anyhoo, their website:

http://www.teacherscreditunion.com.au/

6.8% on a 1-year TD is the rate that Westpac had as well, and people went apesh*t with surprise about it. Westpac removed it. That would have been about 2 IR rises ago. As tom said in a post, we're probably still getting an extra .15% on our savings with UBank because it;s compounded- or say 6.10 for the savings bonus rate compounded.

6.31% on 6 months still looking lovely with Rabo. Many of the highest rates don't seem to have moved much with the latest rate rise. We'll see.

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no particular intention from UBank to raise rates at all. Pfft. They could give us a token. From their Facebook:

Facebook.com/ubank

Ripley Scout come on guys you're dragging your feet. Are you raising your rate?19 hours ago27525_27391999053_5774_q.jpg UBank – Backed by NAB Not at this stage. But we're always reviewing rates to take into account competitors as well as the value of deposits to the organisation. Whilst our rate is so much above the cash rate, cash rate changes are really secondary to pricing decisions. (GS)7 hours ago

_____________________

Blah blah. dry.gif

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...but clearly a teacher didn't establish the website, which has no apostrophe! so, 12-months @ 6.8% (tiered for 50k and above. For below 50k, it's 6.01%). This one doesn;t shoew up clearly on ratecity, but is on infochoice.com.au. To join TCU, you have to bea teacher, have been a teacher, worked with a teacher or just know a teacher :) 6 degrees of separation they call it on the site. ...

I do a bunch of work for them, want to fire the bit of the website with the typo and I'll laugh at someone :)

From chatting to them when I am onsite pretty much anyone can join now I think. Of course that could be what you are saying.

Out of the banks / credit unions I have worked for I have to say they actually try hard in the area I am in, as with all banks they have their legacy bits and pieces but I give them credit for trying to fix stuff. IT guys actually care about customer issues, not seen that in many banks.

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Ugh. My paragraph that you've quoted by me about their lack of apostrophe, is fulled with typo's. I am not better. rolleyes.gif tor, go their website. I can't copy and paste the logo because it has the generic site name in "properties":

http://www.teacherscreditunion.com.au/

Top left is their logo. I think people often have trouble once their logo is established. Once the apostrophe is gone, they just have to use the "faulty" one on their letterhead, and on their website etc. I've seen this happen before. Would be good if you could get it changed, though. I've always been fond of a correctly used apostrophe.

Actually, I hads a further look at the site, to see if it was more than just the logo. Each time they have termed themselves, it is as "Teachers Credit Union". dontgetit.gif They need to do a term find and change each and every one of them. It migt have been written by one of that sub-group of late Gen X teachers who didn't learn grammar at school, and so have no clue about apostrophes. I've met a few of them and I despair. Semi-literacy is not far from that particular cohort. They know it, too, but have no issue taking their poor grammatical knowledge into the school room. thumbdown.gif One of my pet hates, as you might be able to tell. Only grammar nuts must be in the teaching academy/fraternity! Hehe. I believe they're bringing grammar back into the schools now... but who will teach the children grammar? Teachers who never learned grammar themselves? Anyhoo... if they have to teach it, they might learn it themselves when preparing lessons.

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