Globally, bond yields are under pressure as economic growth picks up and central banks consider how to unwind, suspend, or reduce quantitative easing (QE) programs that have typically involved on-market purchases of long-term government bonds.
While Australia hasn’t had a QE program, Australian bond yields have also moved higher as we follow the benchmark US market. Over the last month, the benchmark 5-year government bond has risen by 18 basis points (0.18%) to 2.49%, while the 10-year government bond has risen by 0.22% to 2.88%.
5 Year Australian Government Bond Yield – 1/17 to 1/18
So, has this increase in government bond yields had any impact on the rates available to private investors for term deposits investments? Or for cash?
Here is our periodic review of the best cash and term deposit rates.
And while it can be a hassle to change banks, if you want that extra 0.25%, be prepared to shop around, because the rates vary considerably between the financial institutions. Transactional capability, fees and convenience should be considerations, but don’t be put off by security concerns. With the effective Commonwealth Government guarantee on deposits of $250,000 on a per client per financial institution basis, Bank A is as good as Bank B up to $250,000.
Bank accounts for SMSFs
Most banks offer tailored accounts for SMSFs (see below), which are fee free and can be used to make payments online. Some accounts require a linked working account to access full payments capability (for example, with another bank in the case of Rabo or ING, or within the same bank by St George/Bank of Melbourne or NAB).
Rates as at 22 January, 2018
If interest rate is the key determinant, then RaboDirect, NAB SMSF Cash Maximiser and UBank are the leaders. UBank pays bonus interest of 0.40% if no withdrawal is made in the month. However, if your SMSF has more than two trustees or two directors – you can’t open an account with UBank!
If transactional ability is important, then it is hard to go past the major banks. For SMSFs, Commonwealth Bank offers the Commonwealth Direct Investment Account (CDIA) which can be accessed through NetBank, while Westpac has the DIY Super Account, which incorporates two pre-linked accounts. Although Westpac is now heavily promoting an SMSF solution with BT, the Westpac account is still available.
For the CBA’s CDIA, BOQ’s Super Savings Account and NAB’s SMSF Cash Maximiser, no interest is paid if the balance is under $10,000. However, the advertised rate is paid on the whole balance if it is over $10,000 – so it will usually make sense to keep a minimum balance of at least $10,000 in these accounts.
Listed below are the latest term deposit rates on offer as at 22 January 18. UBank is offering the best short-term rate of 2.55% for 3 months, while ME Bank has the stand out rates for 6 months, 1 year and 3 years. RaboDirect is paying 3.15% pa for 5 years
ING Direct, RaboDirect and UBank also reward loyalty by paying an additional 0.10% pa when an investor rolls over the full amount of a term deposit to a new deposit term.
Rates as at 22 January 2018 for deposits of $50,000 and upwards for SMSFs. Interest paid on maturity, or annually for 3 and 5 year terms. Advance notice (31 day) products selected when offered. Teachers Mutual is “customer” rate.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.