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Banks pull back their headline term deposit offers to shorter terms. Savers scramble over minor differences. Some PIE funds give a little bit extra

Banks pull back their headline term deposit offers to shorter terms. Savers scramble over minor differences. Some PIE funds give a little bit extra

The term deposit interest rate offerings from banks are quietly changing lower.

Since we last looked at these in early September, there has been some further slippage.

It has now been six whole months since maximum rates were last offered at 4% or higher by a national bank. (The local branch of the Bank of India was the last of any bank to slip below that threshold and they did that at the beginning of this month).

What we are seeing are 'headline' rates getting shorter and shorter.

For example, the latest to do this was ANZ, shifting its 3.60% rate offer from 18 months to now just 8 months.

Here is a summary of each institution's top rate offer for terms less than two years:

  Top rate for Term ... As at PIE, equiv.
    (less than 2 years) for a 33% taxpayer
  %   %
3.60 8 months* 3.87*
  3.45 18 months 3.75
ASB 3.65 18 months 3.98
3.55 9 months 3.86
  3.30 18 months not offered
Kiwibank 3.60 6 months 3.76
Westpac 3.50* 6 months* 3.75*
       
3.60 6 & 18 months not offered
Heartland Bank 3.40 12 & 18 months 3.69
HSBC 2.90 12 months not offered
RaboDirect 3.50 6 months 3.76
  3.40 12 months 3.65
SBS Bank 3.60 18 months not offered
3.25 18 months not offered
UDC 3.50 9 months not offered
  3.55 12 months not offered
  3.65 18 months not offered

[* Updated. This rate was missed in an earlier version of this story.]

If you are in the top 33% tax bracket, you have to option to use a PIE account to get a more effective after tax rate. (The PIE rates in the above table show what the equivalent non-PIE rate would be, enabling a fair comparison with regular rates).

At this time, you can "almost get 4%" using the ASB 18 month offer as a PIE. Either way, ASB will only offer you 3.65%, but the tax is at 28% for those in a PIE account (hence the higher comparison rate above for those who would otherwise pay tax at 33%).

Every little bit counts when rates are low.

You can of course go up the risk curve by checking out other types of institutions. Finance company Liberty Financial, which has an investment grade credit rating of BBB-, is still offering rates of 4% and above. Most sub-investment grade rated finance companies do so as well.

But the balance of security (as measured by credit ratings) needs to be weighed against return (as measured by interest rates).

The option with the highest security (Government issued "Kiwi Bonds") are currently only paying 2.00%.

Our unique term deposit calculator can help quantify what each offer will net you.

Term deposit rates

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2 Comments

Did anyone notice this a while back from ANZ - their excuse for not dropping mortgage rates when the OCR dropped was that they have had to put term deposits up - just recently they dropped the term deposits back down but still are holding mortgage rates up - huge increase in margins and bank profits will be the result:

"However the bank did have some good news for savers - where it plans to increase some term deposits by up to 0.3 percentage points.

ANZ chief executive David Hisco said ANZ was refocusing its lending and borrowing emphasis.

"On the deposits side, we have five times as many customers as those with home loans. Lifting term deposit rates will help customers grow their savings," Hisco said.

"We are sending a strong signal today to New Zealanders that at a time of record low interest rates, it is more responsible to pay down home loans and save, than borrow more. New Zealanders need to consider changing their financial strategies."

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The ANZ refocus on term depositors lasted about 4 weeks! Then they cut them back but pocketed the margin rather than lowering mortgage rates - the greed of the bankers eh!

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