The Commonwealth Bank has quietly slashed some of its term deposit rates, just two months after boasting that increases could help millions of savers.
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The bank had responded to the Reserve Bank's cash rate cut in August by passing on only half to home owners and small businesses and lessening the outrage by boosting one, two and three-year term deposit rates to 3 per cent or more.
Ahead of a parliamentary grilling of the big banks next week, it has chopped the one-year rate to 2.4 per cent and the two-year rate to 2.45 per cent – now some of the lowest rates in the country. The three-year rate is the same.
"It was a PR exercise from the start, a temporary measure. It was to make their decision sound a bit better, dress it up and make it politically palatable," said Omkar Joshi at Watermark Funds Management.
"The next day we saw Treasurer Scott Morrison say 'very rarely after a cash rate cut do banks lift term deposit rates' but less than 2 per cent of bank term deposit rates are above the 12-month duration anyway."
CBA's head of retail products and strategy, Clive van Horen, defended the move, saying it still offered "competitive" interest rates on deposit products.
"Our term deposit interest rates are delivering value to tens of thousands of new and existing savers who will continue to enjoy these interest rates for the agreed fixed term," he said.
![The Commonwealth Bank has unwound some of its term deposit rate increases.](/web/20160930141702im_/http://www.theage.com.au/content/dam/images/g/q/j/g/x/7/image.related.articleLeadwide.620x349.grryxh.png/1475213572832.jpg)
"Interest rates offered by Commonwealth Bank reflect a number of factors including local and international funding markets, regulatory requirements and competitive conditions and we frequently review our product offering to ensure they reflect market conditions."
Justine Davies from financial product comparison website Canstar believes the "surprisingly large drop" was triggered by the Australian Prudential Regulation Authority's recent decision to change the capital funding of loans that will in turn reduce the banks' reliance on attracting term deposits.
![Many Australians, especially seniors, rely on the security of term deposit rates.](/web/20160930141702im_/http://www.theage.com.au/content/dam/images/g/o/l/g/j/0/image.related.articleLeadwide.620x349.grryxh.png/1475213572832.jpg)
She said if they don't need to be as competitive, they won't be as sharp with their pricing.
"I certainly think other banks will now consider how competitive they need to be in this space and they'll adjust their pricing depending on how they need to be," she said.
"This is particularly true for larger banks; smaller banks and credit unions traditionally tend to have higher term deposit rates as they rely more on term deposits for funding."
David Carvosso, chairman of National Seniors, said the rollback was very disappointing to its members.
"They're still nervous after the global financial crisis, about the uncertainty and fluctuations occurring in other markets, so they look for security, mainly from the big banks," he said.
"The deeming rates for Centrelink are not reviewed frequently enough and cuts like this mean the difference between the deeming rate and what people can earn is very marginal."
CBA has cut its one-year term deposit rate by 0.6 per cent to 2.4 per cent and its two-year rate by 0.65 per cent to 2.45 per cent.
In its August press release, it said increased the rates to provide an opportunity to the millions of Australians who rely on savings.
It saw about $1.5 billion per week in funds go into term deposit offers. A spokesman said he could not breakdown this figure.