Deposit Rates Signal Shift Higher

Sun Herald

Sunday May 30, 2004

By DAVID POTTS, BUSINESS EDITOR

WHILE the experts have been saying for months that interest rates won't rise, guess what. They've been rising.

The reason there hasn't been a song and dance about it is that it's all happened on the deposit side, so nobody has got hurt and a lot of savers are, for a change, better off.

And, besides, everybody knows the Reserve Bank hasn't done anything and won't at Tuesday's monthly board meeting either.

When the rise in deposit rates collides with lending rates, we'll all know about it.

Don't tell anyone, but fixed-term mortgage rates have risen by up to 0.4 per cent in the past month.

It's the red hot speculation that the US will start lifting rates at its June 30 meeting that has gripped the markets.

Mind you it seems implausible that Alan Greenspan, the head of the Federal Reserve, would jeopardise George Bush's already shaky position with a rate rise before the US elections in November.

But, unlike the Reserve's Ian Macfarlane, he might not have any choice. It's been obvious for some months that the official 1 per cent rate is far too low. For starters, the average American mortgage rate, already 5.3 per cent, jumped to 6.2 per cent last week. To get an idea of the size of the reality gap in the US, that's only 1 per cent lower than our standard mortgage rate, yet official rates here are 5.25 per cent.

For borrowers, there's little point in fixing even if a rate rise is possible after our federal election, since it wouldn't be large. Mind you some borrowers are offering fixed rates at below the standard variable rate.

Savers, at least, are getting better treatment, with an extra 1 per cent from banks for committing to a three-year term.

Coming back into fashion now that rates are rising are income securities. These have no maturity date so can only be cashed in by selling on the sharemarket, but yield up to 7.5 per cent.

Reset preference shares offer even more, although you are at the whim of the sharemarket. Adelaide Bank is yielding almost 5.8 per cent, or 8.2 per cent after franking.

BEST MORTGAGES
Lowest variableWizard Home Loans        5.89%
 HoneymoonYes Home Loans                5.99%
2 yearsHibernian Credit Union           6.60%
3 yearsHibernian Credit Union           6.65%
5 yearsNewcastle Permanent              6.94%
Source: CANNEX

© 2004 Sun Herald

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