Notice saver accounts – a term deposit/ at call account hybrid

Key points:

1. New notice saver accounts provide higher returns than at call accounts but lower than term deposits as they give investors the right to withdraw funds under defined notice periods.

2. Term deposit brokers such as FIIG offer services to maximise the government guarantee.

3. Corporate bonds remain attractive alternatives to term deposits offering a yield to maturity of up to 5.09%.

One of the biggest drawbacks to term deposits is the lack of liquidity or access to your money if you need it. Generally banks will let you withdraw part or all of your term deposit in case of emergency but that usually comes at a cost; penalty interest. However, banks have been listening to their customers who want greater flexibility.

Two regional banks, AMP and RaboDirect are now offering “Notice Saver Accounts”. The Notice Saver account is a bit of a hybrid in that it has term deposit and at-call account characteristics. The interest rates on offer are generally higher than at call accounts but lower than term deposits. If you have a large portion of your portfolio in term deposits and think you may need to access some of your money, then this new product may be a suitable addition to your portfolio.

The AMP Notice Saver Account has a simple structure where the bank will accept amounts up to $10 million and has guaranteed to pay at least 100 basis points (bps) (100bps = 1 per cent) above the cash rate, making the current rate 3.5%. The required notice period is 31 days, short enough for most thinking about taking advantage of cheap holidays or if you’re a business, paying a large bill. The very high maximum amount also means this account is good for larger corporations.

The RaboDirect structures are more complex but in return offer potentially higher rates. For example notice periods can be 31, 60 or 90 days paying 3.85%, 3.95% and 4% respectively for a maximum $250,000. The rates on offer then decline for larger sums. RaboDirect make no promises in regards to paying over the cash rate but the flexibility they offer is better if you can afford to wait for longer if you need the funds.

There is no minimum investment amount for either bank and both offer emergency access to funds as long as investors show proof.

The company I work for, FIIG Securities, brokers term deposits as they are a fixed income investment. If you have large amounts to invest, using a broker can be advantageous. FIIG has relationships with over 60 authorised deposit taking institutions (ADIs), which means that APRA (the Australian Prudential Regulation Authority) has granted the ADIs a licence to take deposits, so each individual/ entity is eligible for the Commonwealth government guarantee up to $250,000 with each ADI.

As FIIG has so many relationships with ADIs, for those investors in 100 per cent cash, we can help them divide their investments between institutions to maximise the government guarantee.

One example where FIIG was able to benefit both the ADI and the investor was when we arranged a term deposit for a mining company direct with a local credit union. The credit union was happy to have a single investor, so offered higher rates and the mining company was able to invest and have flexibility in accessing the funds.

Term deposit rates remain low and market projections for the next three years are that they will stay low. Low risk, short term corporate bonds for retail investors, maturing within the next three years, offer yields to maturity of up to 5.09 per cent and remain a good alternative for those looking to increase their term deposit returns.