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Savers are being squeezed with low term deposit rates so you really need to do your homework to protect your interest earnings

Posted in News

Interest rates are falling, as anyone with a home loan knows. Banks are competing hard with offers that are lower and lower.

But if you are a saver, you will be noticing this same shift as well.

This whole shift lower is known as 'financial repression'. It may last a long time.

Banks are reducing their term deposit rates in small incremental amounts and many of these reductions are falling below the radar. This week, both ASB and RaboDirect cut their TD rates

However, these 'small incremental' reductions are getting cumulative, and it is now rare to find term deposit rates above five percent except for the longest terms and for the toughest interest-payment terms.

Five percent is low if you are a saver - but it even lower on an after-tax basis.

Low rates have not stopped us saving however. The latest data from the RBNZ is to the end of August 2012 shows households have $108.8 billion in term deposits, up more than $20 bln from only $88.4 bln in four years. In the last twelve months, the growth is $6 bln alone.

How long will Kiwis tolerate having $108 billion earning about 4% gross, or less than 3% after tax?

Savers who want to use the relative safety of bank term deposits need to use every option to keep their returns up.

Firstly, they need to not be lazy on the rate. Almost all banks have similar credit ratings and risk profiles. Therefore, getting the best rate is important.

Here is a review of where rates stand today and who has the highest carded rates for some key terms:

for a $10,000 min 6 mths 1 year 2 years 5 years
  % % % %
ANZ-National 4.00 4.30 4.30 5.00
ASB 4.00 4.20 4.20 5.00
BNZ 3.60 4.30 4.30 5.00
Kiwibank 4.00 4.30 4.35 5.00
Westpac 4.00 4.30 4.35 5.00
         
Cooperative Bank 4.00 4.10 4.30  
HSBC 4.00 4.15 4.25 4.90
RaboDirect 4.15 4.40 4.40 5.15
SBS/HBS 4.10 4.40 4.40  
TSB 4.00 4.30 4.35 5.25

What is striking about this review is how little rate variation there really is. RaboDirect shines among a set of banks that are making dull offers. But perhaps it is somewhat understandable given all institutions are awash with cash and the economy is not really demanding significant new credit. Understandable yes, but painful if you are a saver.

Don't forget to keep an eye on the 'specials' - banks are occasionally offering slightly better rates for odd (usually short) terms. You will need to read the full tables here » and here » to find those.

Until now, savers have typically chosen short terms. But if rates are going to be low for a long time, perhaps more will chooose to capture the falling longer rates where they are now before they possibly fall further. (However, some people will have memories of being stuck with low longer rates in an earlier era.)

It is important to remember that you can - probably should - shop around and negotiate. Yes its work, sometimes hard work, but with low rates this work may be necessary - most of us can't afford to leave anything on the table.

Rates are low now, but they have been lower in the past. For most terms, they were lower in 2009 and for some terms they were also lower in 2003. No one knows where they will go from here - least of all us - but further falls are not unlikely.

Secondly, getting compounding working for you will help if you don't need the income. If you do need regular income, understanding the rates on offer for the various interest-payment arrangement is vital. Our full tables have all rate offers coded for these variations. These features can sometimes be negotiated too, but perhpas less these days.

Our handy deposit calculator » will convert those %s into $s and it is dollars that you are earning.

Thirdly, taking advantage of the PIE tax options could also give you higher returns. Most banks offer term PIEs. These are special accounts that will lower the tax you pay on the interest earned if you are in the 33% or 30% tax brackets. Our special PIE tables show the equivalent rates for those tax levels, and our deposit calculator allows you to set your own PIR rates.

The term PIE rates are here »

Readers are encouraged to share their term deposit negotiating strategies and experience in the comment section below.

Low rates offered by banks reflect the low risks and enhanced security banks are assumed to have. Some savers will find it acceptable to assume higher risk and take the higher returns this offers. Our term depoist pages list those options too. For example, Heartland Building Society (who hope to become a bank soon and are investment grade) offers up to 0.5% to 0.9% more than most banks. Fisher & Paykel Finance offeres and even higher premium, although they are only rated  BB. There are many other options.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment in the box on the right or click on the "'Register" link at the bottom of the comments.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

21 Comments

Are Businesses Quietly

Are Businesses Quietly Preparing for a Financial Apocalypse? - courtesy Zerohedge
 
US corporations are sitting on more cash than at any point since World War 2.
That's without including banks. I'm only talking about nonfinancial corporations – the ones that sell goods and services and make the economy go.
Those businesses hold $1.4 trillion. In absolute terms, that's the most ever. In relative terms, it's the most since World War II.
 
If New Zealand savers have an apocalyptic predisposition to hoard cash, it doesn't matter much what interest our piddly little banks pay - it will never be enough.
 

Prof. Jeremy Siegel on CNBC ,

Prof. Jeremy Siegel on CNBC , claims the Dow will reach 17 000 by the end of 2013 ..... and that housing will resurge in the USA , adding 1.5 % to GDP in 2013 .......
 
....... he's arguing that muliple expansion will drive stocks higher , rather than earnings growth ..... as investors look for greater gains than cash currently offers ...

I think that would be

I think that would be Bernake's dream come true. He has all but said he whats to reinflate the housing bubble, not to mention stock market

Want a higher rate , go into

Want a higher rate , go into Westpac and open an Aus$ foreign currency account and get the benefit of a really strong NZ$ and higher Interest rates on Aus$ .

Good idea Boatman, until RBA

Good idea Boatman, until RBA cuts rates again next month and the IRD here snap you for capital gains tax on any appreciation made when you bring the A$ back into NZ$. 
Possibly better in long run to stay on this side of the ditch and take what you can and not worry about the currency fluctuation/volatility and the taxman.
Craig.
 
 
 

Yes, and Westpac will profit

Yes, and Westpac will profit when you buy exchange into AUD and exchange back to NZD. Take that into account when you open the TD.Many Japanese retail investors got burnt investing in NZD and AUD term deposits through Japanese retail banks.

The best savers can hope for

The best savers can hope for is to hold on to their capital value...after tax theft and debasement, given the manipulation of rates for the benefit of the banks by the banks, no gain is made each year. It's a stand still world.
Those with enuff saved to afford a prime plot and a mortgage free new house, should take the plunge but.....in most cases you will be better off buying an oldy and doing it up. Building new invites bureaucratic theft by way of red tape with gst on top.
This is why the building sector is desperate that the chch quake leads to growth in demand for new homes...it will but...it will not last forever...and when it splutters, expect the pain to return in spades.
The long term damage comes from short term policy decisions to steal from savers while also propping up property prices with cheaper credit for longer. Younger gens learn to expect shoddy govt policy and understand why they would be wasting their time and lives saving for their future.
evidence:"New Zealand property values extended their gains last month, and have recovered the losses seen after the global financial crisis and the bursting of the country's housing bubble, according to government valuer Quotable Value." Herald
 
 

Yes, hold their capital

Yes, hold their capital value, as yes there is risk.....so sure you want more income (interest) but put it out there and be prepared for loss.
Just one idea, if you are super confident about house prices rising why not agree with your kids to lend them $s at say 4.5% you get the interest off them you both win....still has risk of course.
Wolly, buying old and doing it up, well have a look at the regs these days, they pretty much all say you cant do much without a consent....for instance replacing kitchen cabinets doesnt need a consent, but much else does.....lots of nice council income tied in there....So I'd like to replace a window with one 18inches deeper, so structurally the cross beam wont be touched, bet I need a permit though....bye bye $200+....dont do that of course and you might find your insurance is invalidated if something happens......
I find it interesting that the talk is about interest but I see little on risk apart from they all hold the same risk profile....great so if one goes all are likely to.....
In terms of stealing I think its the lesser of 2 evils. WHat the saved ie OAPs have to relaise is if this economy collapses their state pensions and healthcare are at risk. Not only that historically interest rates have been low, its only post WW2 that ppl have come to expect high rates and only the western world....get naff all in Japan and china for instance.
Saving for the future is a safety thing...its not a waste.
regards

  Pension annuities in

 

Pension annuities in 'freefall' due to money-printing
 
http://www.telegraph.co.uk/finance/personalfinance/pensions/9596938/Pens...
As is often the case the real brians hides in the comments section.
 

BazzaMcKenzie
Today 01:25 PM

 

This is not an unfortunate "side effect" of money printing, it is one of its essential purposes.
The whole point of the activity is to shift wealth to banks and governments, and that wealth (ie claim on real goods and services) can come only from those who already own that wealth (however meagre it may be).
Suppressing interest rates is one side of the process of looting the wealth of savers, reducing growth in their savings.  The other side is the inflation that follows money printing, which diminishes the value of any extant savings.
King and the other evil people running CBs certainly understand exactly what they are doing, but are personally unaffected because of their gold-plated, inflation-adjusted, pensions.
No doubt Cameron and Osborne would approve, though I suspect they are too thick to work out the dynamics for themselves.
 
 

damicol
Today 07:24 AM

 

This is precisely why no one  and I mean no one should invest in any form of pension..
All pension investments drawn up under pension regulations are a scam, perpetrated by the government on those who are reckless enough to put money there.
This will only continue and the real value of your money  fed to you in dribs and drabs by forced legislation   which  keeps any decision making about how you use your savings in the best way for you to decide, firmly in the hands of government and bloody officials.
At this time when things in the economy are real;ly getting screwed it is even more important to keep your  investments 100 % under your control.
 Invest off shore, pereferable in any country with a modern banking system that is not a part of this western craze for  money printing and devaluation.
 Property, and not in a bubble money printing econmy is also a safe bet, and he UK property marlket has a long way yet to go before bottom is reached in absolute terms as measured against  average income.
T he western world  in its corruption and vote buying by building such a giagantic and useless bureauctatic parasitic  state client to vote for them has reached the point it cannot now dismantle any of it.
The bureucratic parasites  will suck every drop from your pensions and investment to ensure they lose nothing.
The only possible way to ensure you have anything left is to get your savings offshoe.
I havnt had a single penny invested in a UK pension for 30 years now, and by opening an offshore account all those years ago I now have  properties yeilding over 9% and relatively liquid, as the market  in Asia is still bouyant, and I am about to but  four more 125 square mtr units cash at a 24% discount that I can let at above 9 % in less than a month. and I have the  40 % benefit by watching the pound depreciate  in the last four years alone , and other highly liquid investments that I can get at,  spend and do what I like and when I like with it and tax free and is managed by trusted brokers in HK and Singapore  on my instructions, and not the bloody governments.
The result is after this time I have a available capital  that is at least twice what it would have been if I had put it all in the best final salary scheme in the UK.
This should be an early lesson for those starting working life, that is if you can get a job and  one that even then pays enough to save for a pension.
Do not do it, do not listen to all the lies and advice given by the thieves in government,  do it yourself, quietly, offshore  and in private.
I was in the corporate pensions business in the 80's and I understand all too well what a scam pensions were back then , and now  its the most blatant theft anf rip off I can imagine.
Its effort and it work, but your alternative is to be a spineless fool that allows yourself to suffer like the vast armies of pensioners are doing right now

 
 

dempster
Today 12:26 PM

 

J.W. wrote: 
I'm as sceptical about QE as the next man, but if we are going to damn it, please let's use some intellectually robust arguments
 -----------------------------------------
 
Dear Jeremy
Here's a robust argument: 
 
The point of Q.E. is primarily to keep the government solvent. 
 
If Great Uncle Mervyn decided to dump the £350bn of UK gilts back on the market, what would happen? 
 
Answer:
1)      Gilt yields would rise dramatically.
2)      The UK government would be likely be insolvent.
 
So there you have it, Q.E. does have a very damaging effect on annuities, but allows the Government to pay for its rather excessive expenditure.
QED
 
Love John 
XXX

 

conspiracy theories rule. If

conspiracy theories rule.
If you look at the debt and capital gain (as earnings have been poor) for at least twenty years pensions/annuities have been paid out un-sustainably, ie they have been based on the building of the above.  Now the end game cometh and ppl are whinning....maybe they should sit back and think where a 7% profit (interest) comes from that and the businesses margin, and the banks margin....etc etc.  So much of the capital gains ie share price is based on debt...now that debt has to be cleared...a triple whammy, pay back the capital takes out that money, plus that money and its interest are not in the economy boosting it.....a minsky moment....
So whats happening? ppl are gambling like crazy looking for a return and an exit before it blows....which means they expect to find a bigger slower fool than them....
oh dear.....
regards
 
 

Sounds like these annuities

Sounds like these annuities managers deserve a massive bonus. I mean they have obviously been doing a fantastic job of managing their funds, and if it wasn't for King/Osborne cocking it up they would be doing great wouldn't they.
If you agree, remember to give your favourite annuities manager a christmas bonus this year in order to incentivise their extra hard work. They have probably rewarded their efforts to the minimum extent justified, and definitely need an incentive top up.
Shame on you Steven, for questioning the performance of these sterling members of society.
 

So whats happening? ppl are

So whats happening? ppl are gambling like crazy looking for a return and an exit before it blows....which means they expect to find a bigger slower fool than them....
 
Steven, are you a NZD taxpayer - if you are, that bigger, slower fool is you!:  read on and be happy you are paying everyday for enrttled senior civil servant to draw, in some cases gold plated, pensions that as a nation we can no longer afford - .let's get these bludgers off our backs - I am sick of being taken for a fool. The so called benefits of low interest rates have to be borne by all not just savers.

I missed that post of yours

I missed that post of yours yesterday so thank you for drawing attention to it again. Just another nail in the coffin really isn't it.

  Energy Higher, Earnings

 
Energy Higher, Earnings Lower
http://www.oftwominds.com/blog.html
 
 

I odnt understand his

I odnt understand his comparison he almost seems to doing a wierd comarison taking the assumption there is energy is at a "natural" level and saying we are poorer becasue we cant buy as much gas....its like the gold bug argument, flawed... ie and not that its getting expensive because demand is soaring as supply stagnates...
His conclusion is right though, we are hostages to oil....no one wants to get off.
regards

Oz banks saying: There is no

Oz banks saying: There is no more money (other than what they can find from depositers)?:
 
Consider the fact that NAB's finance director Mark Joiner recently declared that we are at "peak debt" in terms of our offshore borrowings:

 
“I regard us as at a peak in wholesale borrowing, not even in percentage terms but in dollar terms. Australian banks will only be able to grow in line with what they are able to bring in on the customer side (with deposits). So they will not be able to go with an upswing in credit. In my view, the Australian banks, for a long time, will only be able to buy the asset side of their balance sheet dollar for dollar with what they bring in on the customer side."

Read more: http://www.smh.com.au/business/australias-growth-straight-jacket-20121010-27c0m.html#ixzz28vOFkmfj

 

Henry_tull  The tragedy I

Henry_tull
 The tragedy I talked a bout last week leads to this.
 
 

Max Lyver

12:42 PM (59 minutes ago)

 

to undisclosed recipients

 

 

 

 

We’re delighted to bring you a collection of dairy and support farms in the Patoka area in Hawke’s Bay.
 
Under instructions from the receivers, five dairy farms and two support units are being offered for sale by Public Tender, closing 30th November 2012.
 
The attached ‘Short IM’ summarises each property. Full Information Memoranda (IMs) and info packs will be provided for each farm so if you have an interest in any particular farm, or the whole portfolio, please register with me now and I can send you a full IM when they are available.
 
 
We will be holding two Open Days; on Thursday 25th October and Thursday 1st November beginning at the Patoka Hall at 09.30 a.m. and you are welcome to attend.
 
Please pre-register with your preferred agent so we can arrange adequate catering and transport.
 
We look forward to seeing you there.
 
Kind regards
 
http://www.trademe.co.nz/Browse/CategoryAttributeSearchResults.aspx?sear...
 
 

 

Andrewj, those same

Andrewj, those same properties were advertised in last weekend's Sunday Star Times.
 

Why would anyone save any

Why would anyone save any money in the bank is beyond me.  Looks like a sucker's game when the real inflation you experience is much higher than the interest rate, and THEN pay tax on the interest you made.
I'm borrowing heavily and my net worth is growing at a rate of 30% a year, good luck obtaining anything close to that using a term deposit account.

If you discover 40 years later your kiwisaver is worth $5 million but then it cost you $100K to buy a loaf of bread, well you only got yourself to blame for trusting Government.

What are you borrowing

What are you borrowing heavily for?
is it business or buying assets or what?
let us know.