How Australian Retirees Can Protect Their Income Despite Drops In Term Deposit Rates

The Australian economy is said to be growing at 1.8%, although many Australians are struggling to meet their financial needs. Average household income is declining, and the cost of living is rising. The job market isn’t terrible, but wages aren’t rising to compensate for inflation and the cost of living.

Retirees on a fixed income rely on the interest they earn from term deposits for a portion of their income. Unfortunately, banks have been dropping interest rates below 2%, causing concern for many retired Australians. Without the income they’re used to, many retired Australians can’t make ends meet.

Term deposits are appealing because the investment money is safe and the interest rate is reliable, no matter how low it is. Shorter terms of 6 months to a year give investors access to their income, which is what retirees want and need.

Less than a year ago, banks were offering 2.5% and now many offer just 1.75%. The difference seems small, but for retirees living on a fixed or limited income, even losing $100 in monthly income can hurt. Retirees need to know how to pursue new investments and replace lost income from existing term deposit investments.

Online banks and alternative lenders offer higher interest rates

If you’re a retiree, the first thing you should do is shop around for higher interest rates for term deposits. While some people might feel comfortable pursuing other kinds of investments with more risk, it’s easier to stick with what you know. If you can find higher term deposit interest rates to recover lost income, there’s no need to venture into unknown territory.

The good news is alternative lenders to traditional banks are offering higher interest rates. They can offer better rates because they don’t have the overhead the big banks have. For instance, Firstmac offers term deposits with interest rates above 2%, with rates that rise with longer terms.

With higher interest rates available, it makes sense to move existing investments away from traditional banks the moment they mature. Depending on how low your bank’s interest rate is, it might be worth ending your term early if the penalties are easily absorbed by a new investment with a higher interest rate.

Start investing money from your savings account

Having a savings account is necessary, but if you’re retired you probably don’t need access to $100,000 at any given time. Excess money sitting in a savings account earning next to nothing in interest is money lost.

Keep your savings account padded, but invest as much as you can (comfortably) into term deposits. Your term deposits will earn more interest than your savings account. If you’re getting between 2-2.75% interest on your savings account, you’re probably prohibited from withdrawing money when you need it.

Compare your savings account to other types of accounts that earn interest. If your money isn’t growing as much as it could be, get it out of a low-rate savings account and into a term deposit.

Beware: falling interest rates point to a bigger problem

Falling interest rates on term deposits isn’t the only economic problem Australians are facing. The slashed interest rates are a sign of a struggling economy, but the mainstream media isn’t reporting on it.

Critics say Australia’s economy is in bad shape. According to Michael West, data from the quarterly national accounts “confirms Australia is sliding further down the global economic growth rankings.” West also points out that housing access and affordability is at an all-time low since 2013, and has gotten exceedingly worse since the 2016 election. Retail sales have been steadily declining, and unemployment is rising.

Don’t wait, move your investments now

Experts like JP Morgan warn that Australia’s cash rate may fall to 0.5% by the middle of 2020 and the Reserve Bank would need to cut interest rates even further. It’s predicted that the Reserve Bank will cut interest rates down to 0.75% by the end of 2019.

Now is the time to get in on high interest rates wherever you can find them.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.