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David Chaston looks at the bank rate offers for savers in the light of rising interest rate expectations and finds a focus on bonus saver accounts

Posted in News

It is almost certain that Graeme Wheeler will raise the OCR again on Thursday by another 0.25%.

It will likely be just the second in a two year series of similar increases.

If you think we are in a period of rising rates, borrowers should fix their rate for as long as they are comfortable with.

But what should savers do?

They probably should do the opposite - go short.

Firstly, there seems little point in locking in longer 'higher' fixed rates if those rates are going to be even higher in the future.

Secondly, those longer term rates may not be going up as fast as the OCR. They might (ANZ raised all their term deposit rates by 0.25% soon after the first OCR increase) but they might not too. The fact is, term deposit rates for longer than 12 months are more influenced by the international bond yields through our swaps market. The OCR direction has little influence here. 

The OCR drives 90 day bill rate expectations. These have a major influence on short term rates - those under 12 months.

You can see early consequences in the following table. Committed savers get almost as good a rate from a bonus saver account as they do from a 1 year fixed term deposit.

In fact, the highest rate on offer in our table is the 4.35% in the Co-op Bank's Step Saver account, beating all other banks one year term deposit rates.

Recent swap curves have been flattening - meaning short rates have been rising while long rates have been stable, even falling.

It is not hard to contemplate an inverse rate curve - where short rates are higher than long rates - very much as we had for three years between 2005 and 2008, although the background conditions now are different.

The time for savers to think about moving away from short rates will be when the Reserve Bank has come to the end of its rate hike cycle, and that is not currently scheduled to be until later in 2015.

  Bonus Saver Bonus  1 yr Term
$20,000 balance account name Saver Deposit
    %** %***
       
Serious Saver 4.00 4.10
ASB Savings Plus 4.25 4.10
BNZ Rapid Save 4.00 4.10
Kiwibank On-line Call 3.00 4.20
Westpac Online Bonus Saver 4.00 4.00
       
Co-operative Bank Step Saver 4.35 4.25
Heartland Bank Heartland Saver* 3.75 4.25
HSBC E Saver* 3.00 3.80
RaboDirect Premium Saver 4.15 4.20
SBS Bank. Incentive Saver 4.00 4.20
TSB WebSaver* 3.25 4.00
       
* A regular saver account as no Bonus Saver available    
** interest credited monthly    
*** interest at maturity    

RBNZ data on how our call and term deposit funds are changing is a little opaque because the data they publish as 'retail' bank funding mixes the accounts for individuals and businesses together.

However, long term we have always had the majority of our household deposits in very short durations - less than a year.

And over the last twelve months, this has got even more pronounced. Call funds have risen from 19.5% to 22.6% of all "NZ dollar retail funding", 2 to 90 day deposits have fallen from 23.4% to 20.4%, 90 day to 1 year deposits have fallen from 26.6% to 24.6%, and terms over 1 year have fallen from 5.3% to 5.2%. These changes have happened as overall balances have risen by $13.9 billion to $196 billion. We also have 3% more, over the past year, in our current and eftpos accounts.

Following the changing interest rate signals, we are all going short.

This helps explain why banks are more aggressive in the way they pitch their bonus saver offers over the more traditional term deposit offers.

And it is likely that ANZ's market-leading 5.75% for five years is attracting very little support.

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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3 Comments

I'd like to use Kiwibank more

I'd like to use Kiwibank more but they really would benefit from copying Co-op bank in every way. Ideally the two would merge into one large(r) Kiwi entity.
Kiwibanks 1 month notice account is probably their equivalent  of the above table but at 3.65% is still short of where it should be - at least 4% even with its PIE advantages.

Ah...but ya can hedge the OBR

Ah...but ya can hedge the OBR if kept seperate, though there should be room for only one bank, theoretically, but two might never fail if one idiot over leverages too much.
It is not return on yer money....it is return OF yer money that most savers require, nowadays.
Cyprus has taught us that the Government of the world and the Banks can steal an amount, they desire.
But there may be a limit.
And most savers have reached it.
If I cannot trust one bank, then I and most savers have to take the hole lot into account.
It is not what we do that matters, it is unfortunately fractional reserve banking that is a tad stretched.
They may have pulled back a bit, but not nearly enough for my likening.
Bailing out has its merits. But one hint and it will be all over. And that you can bank on.
Because savers need to be looked after, not the indebted, for the future good.
Do you hear me Wheeler?.
Please give the nod....or I and other savers will.
"Screw banks"...will be my motto, if you try to put the screws on again.
A mattress might be a better cushion.
Maybe others will feel the same.
 
 
 

Good point about hedging

Good point about hedging and the OBR.
I have considered putting money into an oz bank in oz as there depositors are govt guaranteed to  $250k per person per institution, but unsure whether that would extend to non residents?