Industry improves practice on term deposits
The financial services industry has improved its practice in relation to the automatic rollover of term deposits, the regulator has found.
The Australian Securities and Investments Commission (ASIC) has released a follow-up report on term deposits, more than three years after it raised initial concerns regarding disclosure.
The key risk for investors, the regulator said, is that their term deposit can roll over automatically from a high interest rate to a much lower interest rate, which is — in part — a result of dual pricing by product providers.
"Dual pricing is when authorised deposit-taking institutions promote their term deposits by advertising the high rates available on a limited number of term deposit periods, while maintaining significantly lower rates for all other deposit periods," the regulator said.
However, ASIC's follow-up report found those product providers who were the cause of initial concerns had significantly improved their disclosure, though they still use dual pricing.
ASIC Deputy Chairman Peter Kell welcomed the fact that industry had largely adopted ASIC's recommendations from 2010, whilst noting the need for continued monitoring of the effectiveness of the disclosures being made.
"It is essential that investors are provided with timely information about the risks and the return they will get if they let their deposit rollover," 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."
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