Australian savers suffering from low term deposit rates from the big four banks would do well to consider small lenders offering more attractive rates.

Several of these are offering much higher interest rates on six-month term deposits, according to comparison site RateCity.

"For borrowers who want to put $5000 into a six-month term deposit with a big four bank, ANZ is paying the highest interest rate, at 2.10 per cent," RateCity's Nick Bendel says.

"Commonwealth Bank, NAB and Westpac are all paying 2.05 per cent interest for $5,000 six-month term deposits."

For six-month term deposits, smaller lenders, rather than the big banks, are offering some of the highest interest rates in Australia.

Bank of Sydney is paying investors 2.85 per cent interest for putting $5000 into a six-month term deposits, while Bank Australia is paying 2.80 per cent.

UBank, ME Bank and Firstmac are paying 2.75 per cent for $5000 six-month term deposits, while UniBank and Teachers Mutual Bank are paying 2.70 per cent.

The RBA meets today where it is widely expected to keep rates on hold at 1.5 per cent. It has left the cash rate unchanged since August 2016.

term deposit table

Source: RateCity

In a move anticpated by Morningstar's David Ellis, Westpac (ASX: WBC) became the first of the big four to stage an out-of-cycle rate hike. At 68 per cent, Westpac has the highest home loans exposure among its peers.

The bank blamed funding costs for its decision to increase its variable mortgage rate by 14 basis points.

Meanwhile, term deposit rates have offered little to savers over the past year. The average rate for a 12-month deposit has hardly moved, The Australian reports, using data from comparison RateCity.

The average term deposit rate in July was about 2.2 per cent — barely above inflation at 2.1 per cent.

A decade ago, the average term deposit rate was 8.25 per cent. Inflation was at 4.4 per cent and the cash rate was at 7.25 per cent, according to Reserve Bank data quoted by the paper.

 

More from Morningstar

Global Market Report - 3 September

Transurban wins in $9.3bn WestConnex deal

Make better investment decisions with Morningstar Premium | Free 4-week trial

 

Lex Hall is a Morningstar content editor, based in Sydney.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.