Commonwealth Bank and Westpac dominate rival Big 4
Welcome back!
The Australian publised a good article during the week indicating the amazing growth of retail deposits experienced by the merged CBA-BankWest which held a 40% share of retail deposits among the Big Four banks with a $137.1 billion deposit book, and the merged Westpac and St George banks had a 28% share with $98.6 billion.
Both Commonwealth and Westpac held a 68% share of the big four Australian banks retail deposits by March 2009 according to the review commissioned by Brandmanagement.
It was also revealed that the NAB has a $54.9 billion retail deposit book and ANZ a $56.4 billion book.
Banks to pass on deposit guarantee
ANZ and the Commonwealth Bank have announced they will pass on the costs related to the federal government deposit guarantee.
NAB & Westpac have yet to announce their plans which comes into effect from midnight 27 November 2008.
The Government has three scales for the deposit insurance, 70 basis points for AA-rated lenders, 100 basis points for those rated A and 150 basis points for BBB-rated and unrated organisations.
Institutions such as the Bank of Queensland will absorb as much of the cost as possible whereas other’s like the Macquarie Bank have advised they will absord the total cost of the guarantee.
Both the ANZ and Commonwealth Bank as AA rated lenders will pass on the full 70 basis point charge to customers, the ANZ will introduce this as an opi-in or opt-out for customers who have more than $1 million in a cash account.
For customers with less than $1 million the federal government will cover the cost of the guarantee.
Best Australian Deposit Rates
Here at Australian Bank Watch we have spent some time looking for some of the best Australian deposit rates available whether they be at call savings accounts, cash managements account or online savings accounts.
It would be of little surprise that none of the major Australian banks failed to feature in the top handful but expect the major banks to show an increased effort to attract savers.
The major banks have so far concentrated on term deposits but the Commonwealth Bank have recently been advertising their Cash Management account where they offer 5.75%, remember this is above the RBA rate of 5.25%.
However, a number of other well known institutions are offering better deals.
AMP is the best with an eASYCash Management account that is offering 7.35%, the Bank of Queensland also offer an excellent rate with their WebSavings account that has an introductory rate of 7.20%.
The ANZ backed One Direct offer a high interest saver account that offers a solid 7% return while the superannuation backed Members Equity have a Online Savings account offering 6.50%.
They are followed by other major institutions such as St George’s Direct Saver with 6.50%, Adelaide Banks Cash Management Trust with 6.35%, Bankwest with a Telenet Saver account offering 6.25% on a promotional rate and Macquarie Bank with their Cash Trust offering 6.25%.
At a time when the world sharemarkets are in major upheaval perhaps now could be a good time to re-allocate what available cash you have into one of these high interest accounts.
How does compound interest work?
Compound interest has often been described as the eighth wonder of the world and when you see how it works you may consider it so.
It has often been described that if you had a plan to double your money you could refer to the rule of 72.
The rule of 72 refers to the amount of return on your money to actually double your return, it works on the term that if you reinvest your money it will double providing you hit 72% return on your investment.
Of course if you did this in a year or within several years it does not work but generally in excess of 4 to 5 years it will prove pretty accurate.
A good example is if you wanted to double your money in ten years then if you earned 7.2% per annum you would double your return.
A 7.2% per annum return in the past few years would have been perceived as very low but at the moment I am sure most investors would jump at the chance.
Next time you plan your investment return remember the rule of 72.
Is now too late to lock in Term Deposits?
Where you ahead of the pack a few months ago and locked in your savings into term deposits, well if you did then you may have timed it perfectly.
With the Reserve Bank having cut interest rates by 1.75% in the last two months, term deposir rates have started to fall in response.
At the moment we are still gripped by the credit crisis and all the major institutions have increased the deposit rates to secure other forms of funding through deposit rates instead of seeking funds through the market.
This has created good opportunities to secure a term deposit at what on several months ago were sensational returns in a falling market.
In recent weeks the term deposit rates have started to fall in line with the Reserve Bank cuts and now may be one od the last chances to secure a solid term deposit if your planning to lock your funds away for a while in a safe guaranteed investment.
A return over 6% can still be secured for a term deposit in excess of 1 year from institutions such as CUA with 6.75% for over $10,000 and Macquarie with 6.50% for over $10,000. The best deals from the big banks is from NAB and Westpac at 5.50% for a 1 year term deposit.
Mortgage Funds block redemptions
The Australian Mortgage Funds are in a stay of disarray at the moment as a host of major funds have blocked redemptions of mortgage funds to prevent a run on funds that will not only destroy the funds but also seriously damage the long term results of the funds.
Earlier in the week the Challenger Howard Mortgage Fund worth $2.8 billion suspended redemptions. They have now been joined by Australian Unity, AXA Asia Pacific Holdings and Perpetual
The suspension of redemptions has sent fear through the economy as pensioners and long term investors had recently been withdrawing funds in some cases in excess of ten fold on normal levels due to the government guarantee on bank deposits.
The Australian Governement recently announced a plan to guarantee all bank deposits but mortgage funds were not included. This has caused people to run for the doors drawing investments from such funds and transferring into the safety of bank deposits.
No doubt in coming days these mortgage funds will be joined by others as the fear spreading through the economy will continue for a while to come as people see dollars in the bank as the only safe investment.
Have you had your funds suspended for redemption by the mortgage funds? Share your thoughts in our comments section.
Bank Deposit’s guarantee still on Australian agenda
After the recent announcement by the Australian Federal Government that they will guarantee all bank deposits comes an indication that banks or customers will be charged an insurance premium whether they like it or not to secure their money if they have in excess of $1 million.
Wayne Swan indicated that investors will not be able to opt out of the option.
No indication was provided on if the premium would differ depending upon the stability of the institution.
In recent days money has spilled from investment companies into the leading banks as the government announced that all bank deposits would be protected. The ongoing speculation of who would and would not be covered has dealt a heavy blow to some funds.
Do you think an insurance premium should be paid to secure a bank deposit in excess of $1 million? Should people be given a choice to opt in or not?
Please share your thoughts in our comments section.