Nick Bruining: Want a great deposit rate for your savings? You won’t find it with the Big 4 banks

The surprise inflation numbers in March have put borrowers on notice that any chance of a cut to mortgage rates in the near future has been all but abandoned.

And while that’s bad news for anyone with a big mortgage, risk averse investors are popping the champagne corks as deposit rates continue to remain elevated.

Investors now earn 5.75 per cent on their money, all secured by the Federal Government’s Financial Claims Scheme.

Lenders use deposits as one source of funds to sell money to borrowers in the form of loans. Like anyone involved in buying something to on-sell to others, lenders will try to keep costs as low as possible.

Funds are sourced at a wholesale level from superannuation funds, overseas banks, overseas pension funds and other fund managers and, of course, deposits.

In the past few months, and as international inflation pressures abate, lending rates have also slipped back and reduced the costs of these funds to Australian lenders. In turn, the rates they are prepared to offer depositors has eased slightly, but not by much.

According to comparison site Canstar, at the start of the year the average one-year term deposit sat at 4.87 per cent a year, with the maximum rate on offer at 5.25 per cent. Last week, the one-year average had slipped to 4.68 per cent and the maximum on offer is at 5.3 per cent.

However, investors prepared to move money around can easily get 5.75 per cent at call for a four-month introductory period with Rabobank. At the end of the introductory period, it would slip back to the variable deposit rate which is currently 4.40 per cent.

While the honeymoon rate runs for only a few months, unlike a term deposit the funds are not tied-up. You can still access the money and interest at call.

By way of comparison, three of the big four banks are offering returns of 4.25 per cent, but this is for a 12-month term deposit where none of the capital or interest is accessible for a year.

Unlike debentures and other higher-risk deposit accounts, Rabobank and other online banks are covered by the Financial Claim Scheme, which also applies to the big four lenders.

The scheme guarantees the return of your money up to $250,000 per account holder per institution. A couple with $500,000 to invest, for example, could establish two accounts of $250,000 each with the same institution and be fully protected by the FCS.

Only authorised deposit-taking institutions are covered by the scheme which includes all banks, building societies and credit unions operating in Australia, even if only online.

In effect, accepting a return of 4.25 per cent for a 12 month term deposit is like accepting a loyalty fee of 1.5 per cent as well as locking out access to your money.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association