ASIC Report 353 (REP 353) commends authorised deposit-taking institutions (ADIs) for taking up the advice in Report 185 (REP 185), a sector review on term deposits from February 2010, in particular the improved disclosure of interest rates in lieu of automatic rollovers.
However, the regulator said it is also “concerned” that investors are still not given enough time to use the grace periods allowed to change their deposit if it is at risk of a default rollover from a high to low interest rate.
“It is essential that investors are provided with timely information about the risk and the return they will get it if they let their deposit roll over,” ASIC deputy chairman Peter Kell said.
“While term deposits are generally a safe, low-risk investment, they should not be a set-and-forget investment, and investors should still shop around to see what other rates are available.”
REP 353 noted that even when ADIs send post-maturity letters, short grace periods that run from 5 to 14 days mean that many investors are not given enough time to use the grace period to change their term deposit.
However, ASIC said improvements in the sector have been welcomed widely by the industry, including disclosure of the risk of dual pricing, grace periods in pre-maturity and post-maturity letters, and the actual or indicative interest rate that will apply to new term deposits when they roll over.
The regulator said that while ADIs still use dual pricing, more terms now have high interest rate options, reducing the risk of investors rolling over from high to low interest rates.
This has seen the number of these rollovers into low interest rate deposits drop from 47 per cent in 2010 to 11 per cent.
“We are satisfied that, on the whole, ADIs have implemented the recommendations in REP 185, and that there has been a decreased incidence of investors rolling over into ‘low’ interest rate term deposits,” REP 353 said.
“We note, however, that during the review period, $1.9 billion of investors' funds still rolled over into ‘low’ term deposit rates.”
“We reiterate our previous recommendation, as we consider that it is important that investors have sufficient information to make a decision about whether to change their term deposit when it rolls over, particularly about the interest rate they will receive.”
