Judo Bank Leads the Charge as Term Deposit Rates Soar Past 5%
In a significant development for Australian savers, Judo Bank has once again boosted its term deposit (TD) rates, marking the second increase since the Reserve Bank of Australia (RBA) last adjusted the official cash rate. This latest move sees Judo Bank’s five-year term deposit product become the first to break the coveted 5% per annum (p.a.) threshold in the current competitive landscape.
Following a 20 basis point increase, Judo Bank is now offering a top rate of 5% p.a. for its five-year term deposits. The bank has also enhanced its offerings for shorter terms, with two, three, and four-year deposits now attracting 4.75% p.a. This strategic repositioning places Judo Bank further ahead of its competitors. For context, the next best term deposit rate in the market, according to available data, is from Rabobank, offering 4.70% p.a. for five-year terms.
This upward trend in term deposit rates is being observed across the board. As economists and financial markets increasingly anticipate that the official cash rate will remain elevated for an extended period, financial institutions are responding by offering more attractive returns. It is particularly the longer-term deposit products that are experiencing the most substantial boosts in interest rates.
Current market sentiment suggests a strong likelihood of another RBA rate hike, pushing the cash rate above the 4% mark. Furthermore, projections indicate that this higher rate will persist well into 2028. This outlook appears to be instilling confidence in banks, encouraging them to offer more competitive rates to attract a larger pool of customer deposits.
What’s Next for Term Deposit Rates?
The past few months have been a dynamic period for those interested in term deposits. With several of the major Australian banks forecasting an additional rate hike in May, many savers are adopting a ‘wait and see’ approach, holding onto their funds in the hope of further rate increases.
This strategy echoes the market conditions observed in mid-2023. At that time, six-month term deposit rates briefly touched 5.50% p.a., even as the cash rate stood at 4.10% p.a. At that juncture, a majority of analysts were predicting at least one more rate increase, which ultimately materialised.
Should another standard 25 basis point increase occur, the cash rate would return to 4.10%. However, any movements beyond this point will be heavily influenced by incoming economic data, particularly concerning inflation, economic growth, and the labour market throughout 2026.
Interestingly, in contrast to the peak rates seen in 2023, six-month term deposit rates are currently lagging behind their longer-term counterparts. The highest advertised rate for a six-month deposit in the current market stands at 4.50% p.a., offered by AMP.
The prevailing sentiment in 2023 was that a sustained period of high cash rates would eventually be followed by a cycle of rate cuts once inflation began to moderate. The projected ‘terminal’ cash rate was anticipated to be near or even below 3%.
However, the current economic narrative has shifted. Growing concerns about the economy’s ability to achieve sustainable growth without reigniting inflationary pressures suggest that the ‘floor’ for the cash rate might be higher than previously estimated.
This revised understanding likely underpins the confidence banks now have in offering more robust returns on longer-term deposits. They appear more assured that a significant and rapid decline in the cash rate in the medium term is less probable. Consequently, shorter-term deposit rates may not reach the heights seen in 2023 unless there is a substantial shift in expectations regarding future rate hikes.
The prevailing market trend indicates that term deposit rates, especially for longer terms, are likely to continue their ascent for a while longer. However, it’s crucial for savers to be aware that some banks may adopt a strategy of offering a highly competitive rate to attract a sufficient customer base, only to subsequently reduce it. A recent illustration of this behaviour was observed with Commonwealth Bank, which trimmed its top two-year rate by five basis points shortly after a more substantial 20 basis point increase. This highlights the dynamic nature of the term deposit market and the importance of staying informed.
