The End of High Interest Savings Accounts
A new global banking standards is expected to make high interest online savings accounts too expensive for Australia’s banks, according to assistant RBA Governer Guy Debelle.
They will not be particularly attractive from a banks’ point of view once those liquidity standards take effect from the beginning of 2015. That does not seem to have affected the pricing of these products yet, but it will be interesting to see how that evolves both in terms of pricing and product design as we approach that date.
Some banks have been offering interest rates of as much as 6% for term deposits, and have particularly sought out the smsf market to build cash reserves. The strategy of attracting deposits has been a hallmark of the deposit pricing war as banks attempt to top each other’s savings rates.
The online accounts generally don;t require a minimum balance, but can’t be used to make payments. This makes them unsuitable for a day to day account, but also makes them less costly for banks to administer.
However, according to Debelle, when new global liquidity standards known as Basel III are introduced, these products could become a lot less attractive for the banks to offer.
The liquidity requirements will encourage the banks to seek deposits for fixed terms in order to satisfy the Basel III changes expected to be introduced in the next few years.