Automatic rollover proving costly
Australian investors holding term deposits could be costing themselves money by allowing automatic rollovers, according to comparison website, RateCity.
RateCity chief executive Damien Smith claimed the problem is such that Australian term deposit holders are missing out on an estimated $4 billion of interest per year.
Unless a saver specifically acts to negotiate a new term, or moves their money to another account or provider, term deposits tend to automatically renew to another term of the same length - generally at a lower rate. This is called "automatic rollover".
Using data compiled by the Australian Securities and Investments Commission (ASIC), RateCity says its analysis suggests that 80 per cent of term deposits rollover at the end of a term, and around half of these occur "automatically" (with the other half being conscious rollovers to the same term).
Smith said too many term deposit holders were losing money by not switching their term deposits to a higher rate.
"About half the rollovers in the market end up getting a lower rate, which implies that these are the automatic rollovers where the saver doesn't do anything before their term expires," he said.
"Based on ASIC data, we believe that around 40 per cent of all term deposits in Australia are automatically rolling over to a lower rate."
"There are around 10 million active term deposit accounts in Australia every year and the term deposit market is worth over $725 billion," Smith said.
"It's therefore feasible that as many as four million term deposit accounts automatically roll over to a lower rate every year. With a small amount of shopping around, the Australians who have these accounts could get much better rates."
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