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• Oct 1 2015 at 8:04 AM 
   
  
  
•  Updated Oct 1 2015 at 8:04 AM 
  

Aussie Savers turn their backs on term deposits

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[img=620x0]http://www.afr.com/content/dam/images/g/j/x/a/s/b/image.related.afrArticleLead.620x350.gjyfkx.png/1443650642211.jpg[/img]Savers were looking to diversify into higher income bearing assets such as shares and property because of the paltry return available on cash. Craig Sillitoe
by Sally Patten
Savers are shunning term deposits despite the sharp falls in equity markets.
Term deposits held by the banks fell 5.7 per cent to $510 billion in the year to August, CommSec noted on Wednesday.
Money held in term deposits has now fallen in annual terms for 21 months, the longest losing streak on record.
CommSec economist Savanth Sebastian predicted it would take a big jolt, such as the collapse of a miner Glencore, to entice yield-hungry investors back into cash.

In the meantime, he said savers were looking to diversify into higher income bearingassets such as shares and property because of the paltry return available on cash.
"The psychology around lower rates is here to stay. People are still chasing yield. Even in this volatility, investors are still interested in chasing the banks and Telstra," said Mr Sebastian.
Financial advisers agreed that low interest rates were prompting investors to move out of cash when their term deposits matured.
The shift was exacerbated by predictions that Reserve Bank of Australia might lower the cash rate by another 0.5 percentage points over the next six to nine months.


Graeme Yukich of Entrust Private Wealth said investors were reluctant to roll over term deposits when the new rates were about 2.7 per cent, considerably below the 3.5 per cent on offer three years ago.
Mr Yukich said investors had calculated that they could earn three times as much yield on bank shares as they could leaving money in cash.
"Over the next five years you could lose half your money on Commonwealth Bank of Australia shares and still be ahead," Mr Yukich said.
Bank stocks are currently yielding between 8.5 per cent and 9.5 per cent.

Chris Morcom of Hewison Private Wealth noted that in some instances it was possible to obtain higher yields on at-call cash accounts than on term deposits, while the tightening of the rules on term products by the Australian Prudential Regulation Authority was also making term deposits less appealing.
Since January this year the ability to break term deposits has become significantly harder due to a requirement for the banks to hold sufficient liquid assets to cover lending outflows for a month of turmoil.
"Term deposits have become more restrictive. Why lock in money at low rates with no flexibility?" Mr Morcom said.
Mr Morcom noted that the extended period of low cash rates was beginning to hurt savers. "They can cope with lower rates for a little while, but now they are wondering when it is all going to end," he said.

Mr Sebastian suggested that besides the banks and Telstra, investors were also picking up high yielding industrial infrastructure assets, such as Sydney Airport.