Term deposits collapse

From COMMSEC today:


Term deposits held with banks fell by $2 billion in April to $536.3 billion, the lowest result in 22 months. Term deposits are down 1.2 per cent on a year ago – the biggest annual decline in 11 years.

It’s tempting to condemn the RBA but if I cross-reference this with APRA deposit data also out today I get a very different picture. Both month on month and year on year bank deposit growth is still tracking sideways at decent levels:


We’re clearly seeing some form of deposit cycling, here. Is it mortgage offsets accounts? More at-call money? I’m open to explanations…


David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


  1. More money at call is the rational and indicative answer.

    Is capital flight about to occur? Maybe a big call, perhaps only in a small way

    • migtronixMEMBER

      Exactly, be interesting to know what MM funds are seeing re: at call monies

      EDIT : also high AUD may have shifted money offshore a la dave_commemts

    • No more complicated than being able to get higher interest rates in a savings account (~4%) than a term deposit (~3.7%). Having the money at-call is just a bonus.

    • Yes – money at call. Blockbuster decided in May that it wasn’t worth the extra 1% to roll over the term deposit for another three months. In an incentive saver account instead. With interest rates this low, I want to be the first in line for the bank run.

      And I’m tired of getting d*cked around by banks who insist that term deposits should roll-over automatically by default.

      • 1% more for term deposits?

        You need to familiarise yourself with the infochoice and moneyhound websites.

      • I know – bank loyalty. What a sucker! Hoping they will demutualise one day and give me my share.

        I should say I’m reluctant to put funds into online-only banks. I want to be in the photo queuing for my money when the Government introduces negative interest rates. Where would you queue for an online only bank?

      • Block

        I’m with Op8 here. Maybe there will be negative interest rates but they will just confiscate your money first to pay Gail’s bonus! Negative interest rates will only apply to new savings, The rest will be gone

  2. Dave_Comments

    Commonwealth goalsaver account pays about the same as a TD (or abit more) Maybe just more instruments like that floating around

      • high-interest denotes now the fact that you have a “high interest” in seeing that money (again) allegedly.

      • ozziecoin.com

        Constantly surprised by the level of ignorance displayed concerning money creation in modern fiat-credit economies:

        Lord Adair Turner, formally the UK’s chief financial regulator, said “Banks do not, as too many textbooks still suggest, take deposits of existing money from savers and lend it out to borrowers: they create credit and money ex nihilo – extending a loan to the borrower and simultaneously crediting the borrower’s money account”.

      • ozziecoin.com

        Federal Reserve Bank of Chicago:

        “Of course, they [commercial banks] do not really make loans out of the money they receive as deposits. If they did this, they would be acting just like financial intermediaries and no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits they make to the borrowers’ deposit accounts. Loans (assets) and deposits (liabilities) both rise.”

      • ozziecoin.com

        The American Bankers Association has also stated that most bank loans are made not by doling out paper currency and coin, but instead by creating or increasing deposit liabilities owed by the bank:

        “Typically, bank loans are made to existing customers, or the proceeds of a loan are used to open an account; thus, most bank loans increase total deposits. In the typical credit situation, two balance sheet items –loans and deposits — are simultaneously increased.”

      • ozziecoin.com

        Sir Mervyn King, former Governor of the Bank of England said:

        “Textbooks assume that money is exogenous”… “In the United Kingdom, money is endogenous”

      • ozziecoin.com

        Let me just say Ino: you REALLY HAVE NO CLUE how the banking system is ACTUALLY functioning!

      • For crying out bloody loud..once and for bloody all…IT’s A LOOP !!!!!!!!!!!!!!!!!!!! Where does a loopstart???????? Godalbloodymighty! How bloody stupid is everyone. So the Bank creates a NEW loan. In the UK roughly 30% of NEW money disappears in the Current Account so they have to continue creating loans but thyey need more ‘capital’ Where the hell does it come from???? THIS IS BLOODY RIDICULOUS…..The damned idea that we don’t need savings and therefore deposits is just baloney.

      • No it’s not a loop and it isn’t destroyed in the current account.

        Double entry bookkeeping is so deceptively easy that almost no one understands it because it is looked from two sides and that confuses everyone.

        30% of new money doesn’t just disappear unless it’s used to pay down debt, in which case both the money and the same amount of debt disappear at the same time.

    • Or loans are being repaid, which affects net credit growth.

      You are right about your friend.

      • need to keep an eye on the government budget deficit. they have been driving deposit growth in recent years – effectively doing the borrowing for our current account deficit that the banks were doing pre-GFC.

        its not immediate but as the government tightens its purse strings I think this is when we will see deposit growth slip …..unless the banks pick up their offshore borrowing again!

      • burgo..or we accelerate natural resource, food chain, farm and house sales!
        Good to see someone has some sort of grip on this damned system!

      • burgo – you were doing OK until you introduced foreign currency, which increases our foreign currency reserves but does not affect the amount of $AUD in the banking system.

        That’s where you and flawse are wrong.

  3. Charles Ponzi

    Economic repression for savers.

    Many savers will respond by spending less.

    Savers will pay less income tax.

    • Schadenfreude

      Many savers will respond by spending less.

      Savers will pay less income tax.


      • It’s 2nd class Primary School material Peter.

        You wouldn’t be a real estate agent or car salesman by chance?

      • You wouldn’t be a bar tender by any chance ath?

        So savers are going to decide to pay less tax?

        What will happen is that savers will pay less tax because they earn less interest income – and somehow that’s a good thing for savers?

        That’s what I would like explained. Can you?

      • Peter I think you’ll find the meaning was that savers will earn much less from deposits such that the ATO will receive less tax, and because savers will spend less,then less GST will be collected.
        I think people forget that low interest rates advantage 33% of the community and disadvantage 67%.

        If you are a careful retiree, you don’t have money in an overvalued sharemarket… You stick to bank deposits in the main, so that a retiree like myself has had a 50% reduction in income over the last few years.

        Not a bar tender Peter… 40 years of dental surgery… nearly drove me to bar leaning.

      • Ah I see, the lower rates disadvantage you. I understand that.

        Thanks for an intelligent reply. The number that you have to look at is the difference between inflation and the interest rate. At least the value of your savings is not falling by 15% every year, that’s what happened to a previous generation who lost everything to inflation.

        Dental surgeon – coulda been worse.

  4. Mr SquiggleMEMBER

    It just means ADI deposit growth is coming from products other than term deposits.

    Term deposits are still a huge product sector, but certain durations and rate combinations are losing out to net savers.

    Why lock in a TD 3 months at RBA cash rate + 0.25, if you can have overnight access for RBA cash rate + new joiner Bonus for three months.

  5. A little bit banks reacting to Basel 3 capital requirement changes by reducing the spread on TDs for certain investors, and accordingly the increasing flow of wholesale funds into FRN issuance, perhaps ?

  6. The deposits do not go anywhere.

    When someone buys shares or a goods & services, the seller of this shares or Goods & services take the buyers deposit and puts it back into the banking system

    When someone buys a product overseas, the $A is sold to acquire the foreign currency and therefore the foreign good – the buyer of the $A puts it back into the system.

    Net net, no change in deposits.

    So what is going on?

    From a macro perspective
    Change in deposits = Governments deficits + credit growth – re-classifications* +/- securitisation

    So the change in deposits has been caused by any one (or all?) of these 4 factors.

    * reclassifications include foreign owned deposits, company cash balances, superannuation cash balances, trustee cash balances etc. The differences you see in the data will almost certainly be due to the differences in reclassification.

      • Perhaps – budget deficits are slowing too.

        Reclassification plays a big part. If I move my deposit account to my super account, the bank stats says the system has lost a deposit. Cash balances in superannuation accounts are not classified as deposits (go figure). SO recent SMSF activity could be a driver too.

      • ozziecoin.com

        I cannot see people moving extra funds into super as retirement age raised to 70. Well, the deficits are falling but I thought that was funded from issuances of govt debt, which should have no net impact on money supply(?). Most likely credit creation is stalling.

      • Deficits add to private bank deposits. They also add to Bank ES accounts, which are swapped with bonds. But the private bak deposits increase.

        Government deficits = non government savings.

        It is not a zero sum game.

    • “When someone buys a product overseas, the $A is sold to acquire the foreign currency and therefore the foreign good – the buyer of the $A puts it back into the system.”

      Nope…You’re back to your pet theory that imported goods cost us nothing! Baloney. I buy USD with A$. How does the buyer of the A$, the Australian Bank, put it back into the system? If we want to pay USD for something we have to have it.You are confusing the transaction just because it happens closely. If the Bank is now on the edge of its capital requirements it cannot relend the A$! So the $ can’t go round again.They virtually disappear! We get the USD by selling assets or borrowing USD. Either way teh transaction gives the holder of the debt the wherewithal to buy Aus farms, mines, food processing or houses. The no change thing is a pea and thimble fraud!
      If the Bank is not up against its capital requirement limits it can create more A$ Net effect however is a lesser value for the A$…miniscule on anyone transaction maybe..but there are how many transactions happening every minute.

      Look! Can we have done with this damned stupidity that imports cost us nothing!!!!!!!! What a piece of academic fraud!

      • Flawse,

        You are so hopelessly lost it is ver difficult to know where to begin.

        First, banks don’t buy all fx trades – they facilitate trades on behalf of clients. And those clients put their newly acquired aud back on deposit in the Aussie system (where else can it go?).

        Second, Banks do not accumulate aud and lend out. The loan creates the deposit.
        So the Cad has zero impact on a banks ability to lend.

        I could go on, but I know you do not want to learn. You have your religion. Good fir you. Just do not be surprised if your expectations of doom from the CAD are not met. But that won’t faze you…you’ll just keep waiting and waiting and waiting….

  7. Looking at deposits alone gives you a narrow view ….. you are likely to get a more broader view using “Broad” Money….use the “D3 MONETARY AGGREGATES”

    In April Broad money ticked-up by $10.8b!

  8. Thanks fib…but where from? Govt? Banks? RBA in the overnight money market? Asset sales to foreigners? Foreigners in the money market? I guess it’s a bit of all that!

    • question is even if you knew how useful is the informaion, how will you use the information to make money?

    • Asset sales to foreigners does not increase the amount of $AUD in our banking system, it does increase our holding in foreign currencies.

  9. bernard collins

    A month ago the best rate i could get from the big 4 was 3.7 % .
    Yesterday i got 3.9 % for 6 months which is the first time term deposits have increased since the good days of 6.75 %.

    Something has changed.

    Although Christopher Joyes article refutes this in todays afr in reference to the credit boom.

    I also distinctly recall his prediction in the afr early spring 2013 that interest rates will be on the increase mid 2014 and the property bubble will be booming mid 2014.

  10. Our family has mostly switched our term deposits into Big4 bank hybrids to get 6% effective rate instead of 3.7% and billions have gone there in the last 12 months. Sure they are less secure and they are ASX listed so there is a market risk but it has worked great for us.You get about 4.5% franked quarterly depending on the one you buy.
    I have used Commsec seeing the trade can be done for 0.11%.

    • In these treacherous times you have to remember that the interest rate is compensation for possible loss, and the larger the interest rate the bigger the risk.

      In the beginning of this depression I had a patient who deposited several million dollars with one of the big 4 banks.The bank approached him and offered 2% more than a TD at the time.During the height of insolvency, he was ushered into the boardroom and told that the bank had lost his money.The next one and a half minutes consisted of silence and twelve eyes staring him down, before he was gently ushered out of the boardroom.

      Most of our superannuation is invested in physical gold and silver which pays no interest because there is no risk, and the G-20 countries are heavily invested in gold.

      There are still many people who do not see the comparison of these times with historical precedents: experience runs an expensive school.

      • Hi flyingfox,
        He was very upset… and I didn’t have time to grill him as I had to drill him.
        The dental chair seems to be the place where people are very honest about their shortcomings.

      • flyingfoxMEMBER

        The dental chair seems to be the place where people are very honest about their shortcomings.

        The nitrous might have something to do with that 😛

  11. I think of the Big 4 bank hybrids as a short term parking area for uncommitted funds and at work we use them to cover off our long service leave liability which we are trying to shrink. Yes the risk is higher in these products but if the CBA failed then we would all be in big trouble.

    • flyingfoxMEMBER

      but if the CBA failed then we would all be in big trouble.

      Yes Oz will be in shits. athalone on the other hand would be more than just fine.

      In fact I suspect I suspect he would be making like a bandit.

      “Be greedy when others are wary and wary when others are greedy”

      • Never making one particular style of investment 100% of a portfolio is very important. What I have posted should not be more than a percentage of your total. Your job is to determine what percentage that is.
        At work that would be 2% and at home that would be 5% of funds.

  12. Look at CBAPC for starters and then NABPA,NABPB,ANZPD,WBCPC,WBCPD. All of these are in the hybrids and capital notes section in the AFR.
    All what you would call Big 4 bank securities and all with less security than a term deposit so no 100% shoveling into one security is my approach

    • flyingfoxMEMBER

      Fair enough. Not saying that you weren’t being prudent, just that athalone’s investment stratergy from what he has said is counting on there being a big failure of the banking system in oz.