More on the true cost of term deposits

We were intrigued to see a media release from the Australian Bankers Association last week addressing bank interest margins and funding costs. Apparently the ABA felt the need to clarify the situation after adverse media coverage (for example, the lead in The Australian on Monday but also an analysis in The Sheet on Tuesday) since banks failed to pass on the RBA's cut in the official cash rate, in full, on most lending products.

From our perspective, of most interest were the ABA's comments on term deposit rates, their relationship with the 90-day bank bill rate and the inclusion of a chart sourced from the RBA.

Yes, the negative margin between term deposits and bank bill rates has narrowed but it is only on special offers where the margin is positive.

Perhaps National Australia Bank was being a little disingenuous in its claim that it is currently paying 110 basis points over the 90-day bank bill rate for its term deposit funding.