Savers squeezed again as rates tumble

Economists are picking the official cash rate to be cut by as much as 100 basis points this year.

Savers are being urged to lock in term deposit rates before they fall further with the official cash rate expected to be cut again this year.

While bank mortgage rates are tumbling giving home-owners more cash in their pockets people with cash deposits are being squeezed.

Reserve Bank figures show the average six month term deposit interest rate was 4.19 per cent in November last year.

But since then it has fallen to an average of 4.01 per cent as of May and is likely to be lower now after banks slashed their rates in the wake of the June 12 official cash rate cut.

Mortgage broker Bruce Patten said it was a terrible time for savers compared to those with a mortgage.

"You've got to balance the fact that there are a lot of people relying on their savings to live. It is going to make it harder for them."

Patten said some of those people were also property owners and were making the most of the buoyant market to cash in their investments.

"We are starting to see them cash in property to use as funds."

Economists are picking the official cash rate to be cut by as much as 100 basis points this year.

In June the Reserve Bank surprised the market by making its first cut reducing the rate from 3.5 per cent to 3.25 per cent.

Westpac senior market strategist Imre Speizer is expecting it to go down to 2.75 per cent although he believes there is also a possibility of it being cut to 2.5 per cent - back to where it was after the global financial crisis.

Speizer said deposit rates were just as linked to what was happening to the cash rate and swap rates - the rate at which banks lend to each other - as mortgage rates.

"If we fall to 2.5 per cent then there could be some very low deposit rates."

Savers enjoyed interest rates of around 8 per cent on money in the bank before the global financial crisis.

Since then rates have plummeted to as low as 3.67 per cent in February 2009 for a six month term deposit.

Westpac was the first major bank to cut its term deposit rates in the wake of the June official cash rate cut and has been followed by ASB, SBS Bank and The Co-operative Bank.

James Lockie at finance company General Mortgage said it had cut its interest rates ahead of the official cash rate after looking around at the market and seeing it was too high compared to others.

"We were too high. We took ours off 25 basis points."

Lockie said if he had surplus funds to invest he would do it sooner rather than later.

"The rates will certainly be falling over the next six to 12 months."