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Westpac is the latest bank to reduce its term deposit rates, cutting its local funding costs

Posted in News

Westpac is lowering its term deposit rates effective Friday, November 23, 2012.

The changes are as follows:

Term Deposits and Term PIE Funds:

12 month rate: decreases to 4.20% (from 4.30%)
18 month rate: decreases to 4.15% (from 4.30%)
2 year rate: decreases to 4.20% (from 4.35%)
3 year rate: decreases to 4.40% (from 4.50%)

Term Deposit Monthly Income Option:

SuperGold 12 month special rate decreases to 4.20% (from 4.30%)
SuperGold 2 year special rate decreases to 4.20% (from 4.35%)

Wholesale rates have been falling recently, although the declines are not large.

Competition in the mortgage market is intense, requiring banks to match low-ball rate offers, and this is affecting their margins.

As most banks now source much more of their funding locally, they "need" to reduce the cost of their funds from the local retail markets to afford being in the aggressive mortgage market.

The mortgage market competition is intense. The RBNZ data shows that the overall market is not growing very strongly. So for banks, winning new mortgage business is pretty much a zero-sum game.

Savers are paying the price.

And, because international money markets are awash in very cheap [printed] funds, savers have few alternative options with offshore opportunities. They are in no position to utilise a carry trade strategy.

Banks rely on savers being resigned to such changes - they know that their 'replicating portfolio' can be relied on to stay loyal.

These latest reductions move Westpac down to the levels announced by ANZ on November 15, although for the one year term Westpac is still pitching its rate above ANZ:

for one year ... Minimum Rate
  deposit $ p.a.
     
ANZ 10,000 4.10%
ASB 10,000 4.20%
BNZ 5,000 4.30%
Kiwibank 10,000 4.30%
Westpac 10,000 4.20%

Smaller banks offer similar rates for the one year term, with the top rate offer being from RaboDirect. (For monthly interest however, the RaboDirect offer is lower at 4.31%.)

Co-operative Bank 10,000 4.20%
HSBC 100,000 4.15%
RaboDirect 1,000 4.40%
SBS / HBS 5,000 4.30%
TSB 10,000 4.30%

Investors should be clear about when interest is earned and paid. This can range from 'monthly' through to 'at maturity', and for larger deposits and longer terms this can make a material difference to your actual earnings. Details on the codes used on our tables can he found here ».

The best way to work out the dollar amount of these aspects is to use our comprehensive term deposit calculator, here »

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?

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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.

11 Comments

But Todd McClay, the chairman

But Todd McClay, the chairman of Parliament's Finance and Expenditure Committee issued a report, not 2 months ago, that said:
 
'Another potential benefit is that the reduced funding costs for banks from issuing covered bonds may be passed on to unsecured creditors if banks can pay higher deposit rates.'
 
What's going on Mr Chaston?  Perhaps you could ask Mr McClay for some clarification.
Because it looks like he is very wrong.
 

So his comments are "all else

So his comments are "all else being equal"
Can you not understand that concept?
regards

It will be argued that it

It will be argued that it would have dropped more if covered bonds hadn't been allowed. You know how these things go.
When people make statements like that, it might end up being true. Or it might end up being completely and utterly wrong. The problem is that the odious decision has been made. And realistically it is not going to be unwound. Everyone with a term deposit or a pre-covered bond, bond has had their security reduced. End of story. Bank profits go up. Open Bank Resolution is much more likely to be needed to be employed.
This persons professional reputation should fall in parallel with the term deposit rates along with those politicians who agreed with these shallow sorts of statements.
 

Is it significantly reduced? 

Is it significantly reduced?  I mean if you are brain dead or un-observant, well OK.  Otherwise with Internet banking how long does it take to move your money to a different bank?  Or throw some Ks on your CC? draw out cash?
Covered bond holder on the other hand are less lquid are they not?  So if it looks like a bank run is likely you move....unless of course they all go at once.
regards

Well written comentary,

Well written comentary, Uninterested!
Familiar story, the support of financiers and banksters at the expense of savers, retirees, and today's tax payers, and thanks to defered accruals, our children, who will be tomorrows' taxpayers. 
Will they vote with their feet?
With sorrow,
HGW

The smarmy claims that

The smarmy claims that covered bonds would lead to higher deposit rates is outrageous. More money supply options for banks is always bad news for local savers. But luckily for Mr Key and his colleagues, most voters are totally ignorant of covered bonds and banking politics.

"Savers are paying the

"Savers are paying the price"...yes they are but with every news item about the rise in property values and decrease in real returns on savings, we can expect an increasing % of savers to bail out of feeding bank profits and into property speculation.
It is now too late for Wheeler to throttle the bubble...it is building quickly on the back of cheap credit and media reports.
Next step on the ladder will be the rise in the cost of building materials...and labour charges...both of which will not face govt concern because of the fat gst theft involved.
The climb up the ladder is underway and the outcome will be average house prices blasting above all previous levels...then.....crash.
 

Yep, when you can only barely

Yep, when you can only barely match inflation in the bank....
Houses and cars. Is it my imagination but am I seeing more flash European cars around Auckland these days..... And things like good-ol-boy American muscle cars....

Well I guess look at the

Well I guess look at the stats....but I suspect you are right, seems that way in Wellington as well.
The thing is we maybe seeing ppl who maybe asset rich but cash poor.
No way to tell, until it all falls apart...
regards

"Savers are paying the

"Savers are paying the price"
 
Wolly, maybe the borrowers and the banks believe current NZ depositors' unsecured loot represents the ill-gotten gains of prior house speculation and hence they should subsidise the new borrowers and bank profits for 'the greater good'.

Yes, today's OAPs are

Yes, today's OAPs are yesterday's property buyers and sellers......so they want their loot and want to keep it....
regards