Banks Tighten Term Deposit Rules

Australian Banks with effect from 1st January 2015 will require investors to provide 30 days notice if they wish to break the term of an existing term deposit.

Until now, banks have offered various penalties for the ability to break term deposits, but from next year there will be uniformity in requiring clients to provide notice to break term.

The advantage of this is that it will allow the banks to better manage their funding requirements.

The chief executive of Curve Securities, Andrew Murray, said banks were making the changes in response to new rules designed to make sure banks have enough liquid assets to survive 30 days of financial turmoil.


Under the so-called liquidity coverage ratio (LCR), which is commencing in January, banks must hold enough liquid assets to cover their lending outflows for a month of turmoil.


"They need to prove they've got enough funds to withstand a thirty-day run," he said.


Mr Murray said the change could be significant for retail investors who needed the flexibility to withdraw term deposit funds at short notice.

"In the past they've been able to break their deposits reasonably easily, the banks have been pretty flexible. But now they can't," said Mr Murray, who manages almost $4 billion in deposit products on behalf  councils, credit unions and universities.


It is understood the change will apply to all term deposits, including those issued before the rules came into effect.


The LCR, which the Australian Prudential Regulation Authority will implement from January, will mean banks incur extra costs when managing money that could be withdrawn at short notice.


Term deposits will not be the only products affected. Mr Murray said this may also make online saver accounts less attractive to banks, pushing down the bonus levels of interest that are often paid.


 This is an important change in banking procedures and one that investors should take notice of.

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