Savers be wary of long term deposits!

Savers are being warned to be careful as interest rates for long-term deposit accounts are climbing higher.

Banks increasing long-term deposit rates

Following a lead from RaboPlus, BankWest has recently increased its fixed interest rate for a five-year term deposit by 0.75 percentage points to 7 per cent per annum.

The next highest five-year term rate is offered by the Commonwealth Bank, which has raised its five year term deposit by 0.3 percentage points to 6.5 per cent.

If you were thinking of putting some money away then the best option is to put some in different term deposit accounts, some three months, one year and five year. That will give you access to your money and if the rates were to go up as expected then you could roll over to a higher rate at a later date.

If one was to put $50,000 in a five year term deposit, then the difference between a 7 per cent per annum interest rate and a 6 per cent rate could be up to $3000. Termination fees do however apply for breaking a term deposit early.

Online Savings Accounts are more popular than Term Deposits

Chief executive Shaun Cornelius from InfoChoice has stated that the most competitive products are online saving accounts.

UBank has recently launched their USaver account with a 5.1 per cent base rate.

If you are prepared to lock away your savings for more than three years then you will receive higher rates. The three-year term deposit rates have increased to 6.2 per cent from RaboPlus and 6.1 per cent from BankWest, and for five years 7 per cent from the same institutions.

Online savings accounts and at call products are presently more popular than term deposits.

Due to current trends and speculation about interest rates most people are scared to lock away funds in term deposits for extended period of time...

Published on August 8-th, 2009 in Savings Accounts
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.