Economists have changed their tune about interest rates and you won’t like it if you’re trying to save.

But here goes anyway. Having cried wolf all year about a rate rise being just around the corner, despite the Reserve Bank (in whose hands the decision rests) saying it wasn’t planning on doing anything, they’ve finally accepted it’s being fair dinkum. Or rather that it doesn’t know so neither do they.

Goodness knows which bit about ‘a period of stability’ in rates meant an imminent rise but there you are. Those who’d been predicting a rate rise as early as this very quarter are now eyeing-off Christmas.

But most tip next year and some toward the end of it according to a survey by of economists including, tellingly, those at the big four banks.

Take it from me that if the Reserve Bank were to do anything before the year is out, it would be to cut rates and frankly that’s only a bit more plausible than a rise.

After all it’s not going to do anything that might push up the dollar, which a rate rise would do by attracting more of the hot money the world’s central banks are so helpfully printing, while commodity prices are on the skids.

Meanwhile, much to everybody’s surprise, government bond yields are falling, apparently due to buying by China’s central bank which would also explain the stronger dollar, so it’s even possible the banks might trim their fixed rate offerings.

Hmm, perhaps not. Don’t want to draw attention to the fact that their economists are predicting a rise in rates which in the real world are falling, do we?

Either way you don’t want to wait until rising rates seem a dead cert before you fix because by then all you’ll be doing is locking them in early. The banks will have already built the rise into their fixed rates making the whole exercise self-defeating. You don’t want the bank to have the last laugh, do you?

Speaking of which, think twice about fixing the whole mortgage. You want to retain some flexibility and, besides, I could be wrong.

But it’s savers I feel sorry for.

Falling yields on bonds, which are the risk-free benchmark for all other deposit and lending rates, not to mention the cheaper money the banks can get offshore, are squeezing whatever juice is left out of term deposits.

After tax and inflation a term deposit leaves you with three-fifths of five-eighths of nothing.

Unless businesses and first home buyers go on a borrowing binge, some way off judging by the lack of investment intentions and unaffordable home prices, the banks just don’t need to be nice to savers anymore.

That’s why term deposit rates have been edging down even though the Reserve Bank hasn’t been doing anything.

More to the point, there’s no reason to expect this to change anytime soon. My guess is that a 12 month if not longer maturity would be better than parking your money in an online account while waiting for term deposits to offer a decent rate. You’ll eventually get a higher rate if you sit there long enough but think how much it will have cost you in the meantime.

The only thing that would prod the Reserve into lifting rates would be inflation picking up.

Nobody expects that, but then as all those bogus rate predictions showed that doesn’t mean much.

Even then, inflation-indexed Commonwealth-guaranteed bonds, which conveniently trade on the ASX, would be arguably better than term deposits.

Unfortunately the interest rate is nothing to write home about but it increases over time with inflation. Even better, the face value of the bond is indexed as well.

Posted by David Potts – Money Manager (Fairfax Digital) on 2nd July, 2014