Three-way tie at the top as term deposit rates reach 5.60%

Bank Australia and Qudos Bank have lifted their 12-month term deposit rates to 5.60% p.a., matching Community First Bank for the highest rate available on the term.

For more frequent monthly payments the customer-owned banks offer 5.50% p.a.

Following this latest move, savers with as little as $500 to invest can now access the highest 12-month term deposit rate on the market, compared at $10,000 with Community First Bank.

Community First Bank also has a lower maximum deposit limit of $1 million.

Heartland Bank closes the gap

Heartland Bank has also strengthened its position in the market, lifting its 12-month term deposit rate to 5.55% p.a.

The increase leaves the bank just five basis points below the leading offers.

The interest is available to both personal and non-personal depositors with at least $10,000 up to $1 million, with interest paid at maturity. 

The rate for Heartland Bank 12-month term deposit paying monthly interest was also boosted by 5 basis points to 5.40% p.a. 

This places Heartland Bank alongside AMP Bank, which lifted its corresponding rate to 5.55% p.a. last week.

See also: AMP Bank lifts term deposit rates to 5.55% p.a.

More banks lifting term deposit rates

Smaller providers are also joining the competition for depositors, including MyState Bank which has also lifted its 11-month term deposit rate to 5.40% p.a. this week.

The latest round of increases comes ahead of next week's RBA meeting, with economists divided on whether the central bank will raise the cash rate again or leave it unchanged.

Westpac and ANZ both forecast Australia's official cash rate to increase by 25 basis points in November, while CBA and NAB are expecting a hold. 

One key piece of domestic data is still due before the RBA's monetary policy board meets: the September quarter CPI.

See also: Inflation to remain sticky in September quarter

Savings accounts still lead on rates

Despite the latest term deposit increases, savers willing and able to meet ongoing account conditions can still earn higher rates through some high-interest savings accounts.

According to Savings.com.au's database, the highest savings account rate currently available sits at 6.25% p.a., above the market-leading 5.60% p.a. available on 12-month term deposits.

The current highest maximum savings account rate is available through Revolut's Instant Access Savings Account, ING's Savings Booster and Ubank's Save account for introductory periods of three to four months. 

But even after the honeymoon period, ING's Savings Booster ongoing rate of 5.65% p.a. is still higher than the top 12-month term deposit rate, provided that savers meet the bonus rate condition.

To unlock the bonus rate, ING customers must increase their balance by at least $100 each month. 

More Aussies favour savings accounts to term deposits

Recent research commissioned by ING suggests many Australians favour savings accounts (35%) over term deposits (30%) as their preferred wealth-building tool.

Australian savers' preference for savings accounts appears to be rooted in their desire for flexibility, with more than a quarter (27%) saying having instant access to their money is important. 

Speaking on the The Savings Tip Jar podcast, ING Australia head of consumer insights Matt Bowen said the majority of Aussies preferred guaranteed returns over the uncertainty of investment markets.

"Fifty-six percent of the respondents want that guaranteed return and they're actually thinking that high-interest online savings are better than online term deposits," Mr Bowen said.

See also: Savings accounts vs Term deposits: Which is better?

While term deposits are generally considered lower risk than investments such as shares, savers must commit their funds for a fixed term, with early withdrawals usually attracting penalties.

Market expectations of monetary policy easing next year have raised the prospect that savings accounts and term deposit rates could trend lower over time. 

Mr Bowen noted that the current interest rate environment, with official rates at their highest level in 15 years, had created a rare opportunity for Australians to grow their savings without taking on significant risk.

"If you're one of the fortunate Australians who do have some savings, and are looking to grow their wealth right now, then what we are seeing is that rates above 6% is certainly achievable in the market for those high interest online savings accounts," he said.