Term Deposits - indicative of future interest rates?

We should go back and check this post in a few months to see how much higher they are

 

AMP is offering,
Gov backed [email protected]%, which when compounded equates to 22.54% in 5y
now if they have to lend this, add conservative NIM of 1% /yr, ie total of 25.54%

Its currently offering variable rate home loans at 2.4%,
Just how high MR has to be going forward for AMP to be in money? 5.5+?

I am reading this totally wrong?

 

4.15% from AMP is now higher than Judo's!
It's definitely not an outlier rate!
Rates to the moon!

 

This tax cut is already legislated and royally assented to take effect on 1 July 2024.

That's almost a year to the next election!

It would be major political suicide for Labor to repeal this tax cut (assuming they could even let it pass through Senate).

 

Legislation can be repealed and labors vote base is low/ middle income and Greenies, I wouldn't be very confident that they will change as planned.

I would also be expecting some new taxes on top of the above to cover all the new handouts they will provide , especially once the global recession hits, Look how financially responsible the liberals were until Covid started, cash handouts for all.

 

that's funny because they helped pass that legislation. and let's not forget Labor lost last election because of Bill Shorten's tax-a-thon. Albo would be very careful.

 

yeah I know they did, doesn't mean something won't come up allowing them to change positions on it for "The good of the country".

Never waste a good crisis, as it always provides them with a once in a lifetime opportunity to practice wealth redistribution

Look, i hope im wrong but we shall see.

 

We all know what happened to the Popular PM Kevin 07's Mining Tax.

 

Ah Kevin07, was the last time I voted for Labor , won't be making that decision again for a long time judging by the current lineup

 

Imagine looking at 3 year bond yields 12 months ago and using them to predict rates in 2024. You'd have been way off.

Maybe the bond market will be more prescient this time. On the other hand, even if they are wrong about underlying inflationary forces, if bond traders believe something to be true, then for a month or a year it is. Inflationary expectations breed inflation.

 

With AMP, the rules say you can withdraw a term deposit early, with the following adjustment to the interest rate:

1.6 Interest rate adjustments for early withdrawal of term deposits
If a term deposit is withdrawn early, the interest rate will be adjusted by the percentages shown in the table below.
Portion of Term Completed Interest rate adjustment
Less than 25% 0.50% p.a.
25% to less than 50% 0.40% p.a.
50% to less than 75% 0.30% p.a.
75% to less than 90% 0.20% p.a.
90% or more 0.10% p.a.
If the original interest rate, before any adjustment is made, is less than or equal to the applicable interest rate adjustment percentage, no interest will be paid. For further information about early withdrawals, see the section on early withdrawals from your term deposit in the Deposit products terms and conditions, available at amp.com.au/bankterms or by calling us on 13 30 30.

So for example you take out a 12 month term deposit at 2.9%. You give 31 days notice to withdraw early at 6 months and 1 day. The interest rate penalty is .3%, so your effective rate is 2.9-.3 = 2.6% for the 6 months. But the normal rate for 6 months is 2.15%. So why wouldn't you take a 12 month term and then withdraw early if something better is on offer? Or have I missed something?

 

Just realized the effect is even better for longer terms, example:
Term deposit for 4 years @ 4.05%. The interest rate adjustment if less than 25% completed is .5%p.a. Effective rate is then 4.05-.5= 3.55%. So effectively you are getting 3.55% with your funds available on 31 days notice. Sounds too good to be true, have I understood correctly?

 

More on the AMP term deposits, there is a catch: buried in the fine print, the interest rate adjustments for early withdrawals can be changed by AMP with 30 days notice. However, for early withdrawals you have to give 31 days notice. Doesn't look like the interest rate adjustments have been increased recently, while the term deposit rates have.

 

If the yields are up almost 100% in 30 days, would you expect them to keep climbing in line with IR increases or until the markets get Fed's/ RBA's signal on where they see the rates peaking..and then adjust the returns against that?

 

Bond Yields are market way of telling what's the bare minimum lowest risk capital cost.
This sets the reference price point for rest of the different types of capital available form the market.

Historically 2Y bond yield and RBA's cash rate have tagged along very closely to reflect inflation expectation of that point in time,

Note: When RBA cuts cash rate, much lower then inflation band, it has to fund the divergence via QE/TFF, as capital market won't fund these divergence and will stick to inflation band.

These Bond yields are not suppose to react so violently and shoot up and down,
In absence of RBA's QE/TFF, these yields don't have artificial cap anymore,
and are free to determine the true capital cost,

Between Nov21-Mar22
the yield reflected capital cost for "'No QE/TFF' under old inflation band"
aka 1%

then Inflation genie popped out,
the yield then started reflecting capital cost for "'No QE/TFF' under new rising inflation"
aka 3+% and rising

Also keep in mind, in 2023 RBA is planning to start QT(TFF rollback), which is yet to be priced in (if it happens that is)

 

3.15% for 1y TD...hmmm

 

Term deposit strategies - would you have 4x50k term deposits for 2 years V 1x200k term deposit?
That way if life throws you a curve ball - cheaper to break smaller fixed loan?

Is AMP a secure company to use for a Term Deposit?

 

Government guaranteed up to $250k