Long-term Fixed Deposits are outperforming Money Market Accounts

For the first time in some while, longer term fixed deposits are offering higher interest rates than overnight cash investments says Robert Keip, Head of Savings and Investments at FNB.

This is a move which has brought back a spark in long-term fixed deposit investments. And the latest development is going to result in many people electing to invest their hard earned cash in long term fixed deposits benefit from higher returns in this financially tight economic environment.

Currently the overnight rates on Money Market Accounts have fallen below the 12 month fixed deposit rates.

Lower interest rates put a strain on people living off interest income. However, longer term cash investments offer an opportunity for interest rate sensitive investors to lock in higher interest rates.

So, is the time right to invest for longer terms to maximise interest rates, asks Keip?

Interest rates have dropped significantly since the Reserve Bank started to cut rates in December 2008. The SA Reserve Bank (SARB) has already cut interest rates by 3,50% since the start of this downward cycle. The money market is currently discounting another 1% rate cut at the May 28^th Monitory Policy Committee (MPC) meeting.

“If the market’s prediction of a further rate cut at this week’s MPC meeting is correct, investors may well end up earning up to 1,85% less on their money market accounts, compared to the current returns on a 12 month fixed deposit. Rate sensitive investors may want to protect their income by diversifying into longer term fixed deposits and by so doing take full advantage of the current higher returns.” says Keip

Although it is not given that the SARB will cut interest rates at each and every MPC, it should be noted that the SARB has scheduled monthly MPC meetings except for July 09.

FNB offers a range of fixed deposits up to 60 months, preferential rates for seniors and a Restart Fixed Deposit product, a 13 month fixed deposit with an option to reset rates should they increase during the investment period.