Interest rates at record lows spells bad news for savers and risk-averse retirees but produce a bonanza for the sharemarket and property investors, experts say.
WHK Group chief economist Darryl Gobbett said even people attached to term deposits would be spurred into equities and property by 18 months of interest rate cuts, and messages from overseas that official cash rates will be lower for longer.
But there may not be easy gains: the sharemarket has rallied 10.6 per cent in 2013 alone, and 19.6 per cent over the past year.
And Mr Gobbett said the banks, facing less competition since the financial crisis, would not hesitate to slash rates for depositors.
"Banks have plenty of capacity to go down on term deposit rates," he said. "But there'll be more pressure on them to reduce borrowing rates."
Term deposit rates at the major banks are likely to fall towards 3 per cent, AMP Capital chief economist Shane Oliver said yesterday.
And Mr Gobbett said rental yields of between 3.5 per cent 5 per cent on property would start to look pretty attractive.
But AMP Financial Planner Andrew Heaven said property investment relied on capital growth and households cheering on rate cuts needed to ensure they had a buffer for interest rates 2 percentage points higher.
Mr Heaven said people looking at effective interest-rate cuts of 40 per cent - as five-year term deposits paying 6 per cent expire - would now look to take on additional risk, whether it was equities, property, fixed interest or property trusts.
"At best, people will reconsider their online, internet-based savings account," he said. "The key driver is going to assess where people can derive income. Post GFC, it was about the retention of capital. But coming off, it's income."
BFG Financial Services financial planner Suzanne Haddan said it was important to stagger maturity dates for term deposits.
"The other thing to remember is if your retirement portfolio is diversified, it's swings and roundabouts, in that you're suffering on the term deposits but if it makes the economy stronger, and we've seen the sharemarket recover, you win on dividends," she said.
Andrea Slattery, chief executive of the SMSF Professionals Association of Australia, said the rate cuts exacerbated retirees' concerns about the longevity of their retirement income.
"The problem at the moment is adequacy, so this affects more senior people rather than those in the accumulation phase [of super]," she said.
National Seniors chief executive Michael O'Neill said that official deeming rates, used to determine age pension levels, should fall.
"This rate cut will come as a blow for seniors living off simple investments such as term deposits," he said. "Official deeming rates, used to determine age pension levels, have not kept pace with falling interest rates. This, while essentials such as electricity and gas continue to soar around the country."
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