Shop around for a savings product
which suits your needs

Sydney, 1 March, 2010: The Australian Bankers’ Association (ABA) notes the release of a report today by the Australian Securities and Investments Commission (ASIC) on its results of a review of term deposit accounts.

The ASIC report entitled “Review of Term Deposits¹” looks at the marketing and disclosure practices of term deposit accounts offered by eight Authorised Deposit-taking Institutions (ADIs) - banks, credit unions and building societies.

David Bell, Chief Executive of the ABA, said: “Term deposit accounts are generally well understood products and competitive offerings are providing account holders with good returns on their savings, particularly during difficult financial market conditions.”
 
“In this context, it’s good to receive ASIC’s acknowledgement about the active role banks play in informing their customers that their term deposits are due to mature, so that customers can make a decision about their savings. It’s also good to receive ASIC’s feedback about areas where additional or more effective disclosure could make term deposits even better products for consumers.”
 
“It’s important that customers have meaningful information available to them before their term deposit matures so that they know what decision they should make about their money. Typically interest rates vary across different term deposits mostly due to reasons with the way borrowers and lenders participate in the money markets. Therefore, when a term deposit is due to mature, the ABA recommends that customers shop around for the best product which suits their needs and make inquiries about the interest rates on offer.”

“The ASIC report refers to ‘dual pricing’ – the ABA does not agree with this terminology. Term deposits are simple products – like other products in our economy, there are a bunch of prices in the market. When a term deposit matures, customers are provided with a new price and a new contract – not a dual price.”

“Customers shouldn’t just set-and-forget their term deposit. At maturity, a customer has a decision to make and action to take – whether to rollover the term deposit at the interest rate currently offered, or take out a term deposit for a different term with possibly a different interest rate, or transfer their money into another type of account offered by their bank, or take out a term deposit for the same term but with a different bank.”
 
“It’s important for customers to check the current best available interest rates offered at maturity to see what rate and terms might be suitable, because when customers take out term deposits they’re guaranteed the interest rate for the specified term and they’re locking away their money for that term. If someone wants flexibility with their money and easy at-call access, a term deposit isn’t suitable for them at that time.”

The ABA believes that if a customer is considering rolling over their term deposit for an additional term, they should make sure that the interest rate currently offered for the next term is suitable. It is also a good idea to ask if there are other savings accounts which offer higher interest rates than the particular term deposit the customer is contemplating. But remember, interest rates on at-call accounts can change reflecting fluctuations in prices in the money markets, whereas the interest rate on a term deposit is guaranteed for the term and until maturity. However, interest rates aren’t everything – other features should be contemplated, such as whether the savings account can only be accessed online.
 
Mr Bell said: “There is intense competition for depositors’ funds across the banks and there are some very good offers in the marketplace. Meaningful information at the time customers need to make a decision about their term deposit will help customers make informed decisions about the best place for their savings and choose the term deposit or other account which suits their circumstances.”

The ABA will liaise with its member banks and ASIC about how banks can provide further information to customers and better promote term deposit accounts.

The ABA consumer booklet “Smarter Banking: Make the most of your money” provides some helpful information about how to choose an account which suits your needs, including tips to assist consumers understand the different features of different types of bank accounts. This booklet also contains information to assist consumers understand interest rates and money markets.
 
A copy of “Smarter Banking” is available from the ABA’s website http://www.bankers.asn.au/smarter-banking/default.html or contact the ABA on 1800 009 180 to request a hardcopy to be posted.

For further information:

Heather Wellard
Director, Public Relations
Phone: 02 8298 0411
Mobile: 0409 830 439

ENDS