Despite the RBA deciding against increasing the cash rate in July, term deposit rates have continued to climb.
- Bank of Sydney has become the first to offer a 5.50% p.a return on term deposits
- The rate is available for six month terms, with deposits ranging from $1,000-$500,000
This morning, Bank of Sydney announced 20 basis point increases to its three and six month term deposit products, moving rates to 5.20% p.a and 5.50% p.a respectively.
Deposits need to be between $1,000 and $500,000, with interest paid at the term's conclusion.
There is a $30 fee that applies if you withdraw your money early, and you'll need to give at least eight days' notice before you do so.
It becomes the first bank to reach 5.5% for term deposits, eclipsing Judo, the previous market leader, which currently offers 5.45% p.a on both six month and one year terms.
With many analysts anticipating further cash rate increases in the coming months, Bank of Sydney could be the first of several providers that will hit this threshold.
How much can you earn?
A 5.50% p.a return means if you deposited the minimum $1,000, your balance after six months would be $1,027.50, which might seem slightly meagre.
However, depositing the maximum $500,000 means after six months elapsed your balance would be $513,750.
Once it matures, your funds are usually automatically reinvested unless you withdraw, so you could earn interest on top of what you have already accumulated, called compound interest.
Many providers also allow more regular interest payments at the expense of the headline rate, and this could also allow you to invest the interest in other avenues.
Below is a breakdown on how a 5.50% annual percentage rate looks in the flesh.
The ATO considers savings interest as taxable income, so you will be taxed according to your income tax threshold.
"No RBA hike, no worries - term deposit rates hit 5.5%" was originally published on Savings.com.au and was republished with permission.