ASIC today released the results of its ‘health check’ of the Australian term deposit market.
ASIC conducted this review against the background of significant growth in term deposits, with total term deposits in Australian Deposit Institutions (ADIs) growing by over 20 per cent from June 2008 to June 2009.
Currently, ASIC estimates that total term deposits in ADIs now exceed $530 billion. ASIC’s review looked at the period 1 January 2008 to 27 February 2009 and covered eight authorised deposit-taking institutions (ADIs) holding over 80 per cent of Australia’s total term deposits.
In releasing today’s report, ASIC’s Chairman, Mr Tony D’Aloisio, said ‘given the importance of term deposits for many retail investors, we conducted this proactive review to assess how the term deposit market is working.’
‘While our review has confirmed that the Australian term deposit market is strong and working well, we have made a number of recommendations to industry to improve the advertising and disclosure around term deposits,’ said Mr D’Aloisio.
‘This review is an example of ASIC and industry working cooperatively to address an issue in the market and improve outcomes for retail investors,’ said Mr D’Aloisio.
ASIC’s review found that seven out of the eight ADIs reviewed promoted their term deposits by advertising only the highest term deposit rates, while maintaining lower rates for all other deposit periods. The periods on which the advertised higher rates were offered varied over time.
This ‘dual pricing’ coupled with the potential for term deposits to rollover by default if the investor does not take action, creates a risk that a retail investor could inadvertently end up in a much lower interest term deposit. ASIC’s recommendations are designed to address this risk by maximising the disclosure to investors about what happens when their term deposit matures.
‘For retail investors, the key message is that they need to be alert when their term deposit is maturing to ensure they are getting the best deal on their new term deposit,’ said Mr D’Aloisio.
Mr D’Aloisio said that retail investors should ask themselves the following questions:
- What will the interest rate be if I renew my term deposit?
- Should I switch to a different term to get a better rate?
- Should I switch to a different bank, credit union or building society to get a better rate?
- Does another product, such as a high interest at-call account, offer me a better deal?
‘While term deposits are a low risk investment, investors should not see them as a ‘set and forget’ product,’ Mr D’Aloisio said.
ASIC will conduct a follow up review 12 months after the implementation of its recommendations by ADIs.
Retail investors can get more information about what to think about when investing in term deposits by going to ASIC’s FIDO website or by calling ASIC's Infoline on 1300 300 630.