Have you ever walked past the window of a bank branch and wondered why they promote term deposit durations of unusual periods eg 5 months or 7 months rather than the more standard 6 months?
Here are the rates that ANZ is offering for term deposits at the moment (9 December 2012):
1 month 2.5%
2 months 2.5%
3 months 5.5%
4 months 5.0%
5 months 5.6%
6 months 2.5%
9 months 2.5%
12 months 5.0%
Of course the window in my local branch is promoting the 3 and 5 month rates. Isn’t that strange? Why do they offer more for 5 months than 6 months? Surely nobody would be so stupid to invest for 6 months at a rate of 2.5%. So why do they bother having a rate at all?
If a customer commences a 5 month term deposit today, it will mature in May 2012. By that time, ANZ will no doubt have reduced its 5 month rate to say 2.5%. 80% of customers attracted to the 5 month rate will have the hassle of switching banks or chasing the next deal (eg the 6 month rate). The other 20% will forget, or are too lazy. Those 20% of customers will automatically be rolled over into the new 5 month rate of 2.5%. And it is these lazy and forgetful customers that are largely responsible for the banks making billion dollar profits.
In May, ANZ will be promoting a 6 or 7 month rate, waiting to catch out the next bunch of unsuspecting victims. Of course it isn’t just ANZ that does this, I just picked on them because they are first in the alphabet. It is the same will all the major banks. If you don’t believe me, check out their websites.
The implications for Self managed Super Funds
It scares me that 25% of SMSF money in Australia (over $100 billion) is tied up in term deposits, and subject to these tricks by the banks. All it takes is forgetting to go to the bank and suddenly you have lost thousands of dollars in interest.
Fortunately Lime Super’s clients don’t have this concern. Lime Super maximises investment returns for clients with term deposits. Contact us to find out how we do it.