Australia's four major banks and their brands are offering 12-month term deposit specials of 5.20% to 5.40% after the Reserve Bank of Australia raised its cash rate to 4.85% on Tuesday, rates that sit above the 4.99% yield on the country's 10-year government bond at the end of the week.

That gap matters for income investors across Asia who hold Australian dollars, including many in Hong Kong, Singapore and Jakarta with family, property or study ties to Australia. A one-year deposit now pays more than a decade-long sovereign bond, which is unusual. It reflects a market that expects the hiking cycle to end soon, and it changes the trade-off between locking in a rate and keeping flexibility.

What the RBA did and what banks are paying

The RBA's Monetary Policy Board lifted the cash rate target by 25 basis points on Nov. 3, its fifth increase this year, after hikes in February, March, May and September, according to Savings.com.au. The vote was 6-3, with three members preferring to hold at 4.60%. The bank said in its statement that inflation "remains elevated" and is not expected to reach the top of its 2% to 3% target range until late 2027, about three quarters later than it had forecast.

Banks moved quickly on savings accounts. Finder's tracker, published the day of the decision, lists dozens of increases, most of them 0.25 percentage point. Commonwealth Bank's GoalSaver goes to 5.50% from 5.25%, ING's Savings Maximiser to 6.00% from 5.75% and Macquarie's savings account to 5.50% from 5.25%, with most changes taking effect between Nov. 9 and Dec. 1. Many of the highest advertised savings rates are introductory or depend on monthly deposit conditions.

For fixed terms, InfoChoice's comparison table, updated Nov. 7, showed 12-month specials of 5.35% at Commonwealth Bank, 5.30% at St.George and Bankwest, 5.20% at Westpac and 5.40% at BankSA. Smaller lenders pay more: Judo Bank listed 5.45% for 12 months and 5.65% for a 10-month term. Most specials require a minimum of A$1,000 to A$5,000, and several apply only to new money. Deposits at Australian banks are backed by an Australian government guarantee up to A$250,000, as the listings note.

Term deposits vs. government bonds

Bond markets read the decision differently from the headline. The split vote and softer guidance led traders to bet that rates have peaked, as our report on Australian bond yields after the split vote described. The 10-year yield eased to 4.99% on Nov. 6, down 0.42 percentage point over the past month, according to Trading Economics, and some 0.14 point above the new cash rate.

The two products behave differently.

A term deposit fixes the rate and the capital for the term. The return is known on the day of investment. The costs are liquidity and reinvestment risk: breaking a deposit early usually means a notice period and reduced interest, and if rates fall over the next year, the saver rolls over at a lower rate.

Retail investors can also buy Commonwealth government debt directly. Exchange-traded Treasury Bonds (eTBs) trade on the ASX like shares through any broker, with each unit representing A$100 of face value and a fixed coupon paid every six months, according to the Australian Office of Financial Management. Inflation-linked versions, eTIBs, are also listed. Settlement takes two business days, and brokerage applies, the ASX says.

The trade-off runs the other way. A bond locks in its yield for years, which protects income if rates fall, and its price would rise in that case. But the price also falls when yields rise, so an investor who sells before maturity, or who buys above A$100, may take a capital loss. The AOFM states plainly that the government does not guarantee the investment performance of eTBs, though it pays the coupons and principal.

What to check before choosing

For a saver weighing the two, the main questions are practical:

• Time horizon. Money needed within a year fits a deposit or savings account better than a bond whose resale price can move.
• Rate on the full term. Compare the yield to maturity of a specific eTB, quoted by brokers, with the deposit rate for the same term, not the headline 10-year yield.
• Conditions. Check whether a deposit special is for new money only, how interest is paid (annually, monthly or at maturity) and what happens at rollover, when many banks move funds to a lower standard rate.
• Currency. For investors outside Australia, swings in the Australian dollar against the Hong Kong or Singapore dollar can outweigh a difference of a fraction of a percentage point in yield.
• Tax. Interest and coupons are taxed as income, and non-residents may face withholding, so the after-tax return depends on residency.

Banks' pricing will be tested again soon. The RBA's board meets next on Dec. 7 and 8, and Westpac expects no change there, while ANZ sees a risk of another increase in December or February, according to Savings.com.au. The biggest batch of savings-rate increases on Finder's list, including those at Commonwealth Bank, Westpac, ANZ and ING, takes effect on Nov. 13.