Higher term deposit rates for longer terms come as banks attempt to nudge their customers away from a very short term focus. But wholesale rate levels limit what they can offer

Both Westpac and ASB have made changes to their term deposit offers.

ASB trimmed its six month rate by -5 bps to 3.50%.

But it added +5 bps to its one and five year offers taking them to 3.25% and 4.30% respectively

Westpac has also made some smallish moves.

But its very short term rate change can not be described as "smallish". It has bumped up its 30 day rate to 1.00% from 0.35%.

However, it has cut its five month rate to 3.00% from 3.10%.

It has also cut its nine month offer rate, this one by -15 bps, to 3.35%.

And it has cut its 18 month rate by -5 bps to 3.60%.

But all its longer term changes are rises, with +10 bps being added to all rates for terms of two years through to five years.

These moves by these two larger banks fits a new pattern of changing rates by smaller amounts, often. ASB last changed its term deposit rates on April 8, 2017 while the previous move from Westpac came on May 1, 2017.

Most retail funding at New Zealand banks is for fixed terms of less than one year. The latest RBNZ industry statistics shows that local term deposit funding is stubbornly short term. Their L3 data reveals that more than 70% of all local term deposit funding is for periods of six months or less (on a "residual maturity" basis) and this is not declining; as at March 2016 that same level was 68.2%. If you look at levels of one year and less the level is now well over 90%.

Without local saver support, banks need to raise their longer maturities via wholesale funding; the professionals don't mind the longer commitment and 63.5% of offshore wholesale funding is commited for terms longer than one year. Even local wholesale funding is about 50% longer than one year. It is only local retail investors who show extreme conservatism with their term commitment.

One rate that does stand out for savers who want a term less than one year is Kiwibank's nine month offer of 3.75%.

Generally, today's new bank term deposit offers are an attempt to nudge savers into slightly longer commitments, but it is likely to be a slow process.

Equivalent PIE rates have also been made.

Wholesale swap rates have fallen sharply in the past few days, and are generally lower now than at the start of 2017. Lower wholesale rates effectively cap what banks can offer retail clients for longer term rates.

Wholesale rates may be options for banks, but they are not for savers. But you can access bond rates on the secondary market, which offer liquidity in a way fixed term deposit commitments don't. But for that flexibility, you do concede retail rate levels. Depending on how you assess risk, you may well judge the flexibility to get your capital returned when you need it via an early secondary market transaction as more important than the yield return. That is up to your personal tolerance for risk.

The benchmark 'risk free' return for savers are AAA Kiwi Bonds and they return just 1.75% for terms of six months and one year, 2.00% for two years, and 2.25% for four years. Any rate above that is a premium for risk. Credit ratings are one way to assess risk.

Use our deposit calculator to figure exactly how much benefit each option is worth; you can assess the value of more or less frequent interest payment terms, and the PIE products, comparing two situations side by side.

All carded, or advertised, term deposit rates for all institutions for terms less than one year are here, and for terms one-to-five years are here.

Term PIE rates are here.

The latest headline rate offers are in this table.

for a $25,000 deposit Rating 3/4 mths 5/6/7 mths 8/9 mths 1 yr 18 mths 2 yrs 3 yrs
Main banks                
AA- 3.00 3.30 3.50 3.35 3.75 3.90 4.00
ASB AA- 3.00 3.50 3.35 3.25 3.65 3.90 4.00
AA- 3.00 3.30 3.50 3.25 3.60 3.85 4.00
Kiwibank A 3.00 3.30 3.75 3.50   3.85 4.00
Westpac AA- 3.00 3.45 3.35 3.35 3.60 3.80 3.90
Other banks                
BBB 2.95 3.25 3.55 3.60 3.75 3.85 4.05
Heartland Bank BBB 3.10 3.30 3.70 3.40 3.40 3.40 3.70
HSBC Premier AA- 2.50 2.80 2.90 2.90   2.90 3.00
ICBC A 3.00 3.30 3.60 3.40 3.80 3.80 3.85
RaboDirect A 2.85 3.35 3.35 3.40 3.70 3.85 3.95
RaboDirect BBB 2.75 3.45 3.65 3.65 3.75 3.90 4.00
A- 2.75 3.40 3.60 3.65 3.75 4.00 4.05
Selected fincos                
F&P Finance BB* 3.45 3.80 4.00 4.10 4.25 4.35 4.50
RaboDirect BBB- 3.60 3.95 4.25 4.30 4.35 4.40 4.45
UDC BBB 2.75 3.50 3.75 3.80 3.75 3.85 3.85
  * = the only credit rating in this review that is not investment grade.  

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

Term deposit rates

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10 Comments

It would be nice to have a Kiwisaver fund which invested in Kiwibonds only with extremely low fees.
Some say that you should treat Kiwisaver as a profit maximizing stock market plaything. I disagree. I need to know that my retirement savings will be there when I need them.

Assuming you have >5-10 years until retirement, I would disagree. You'd be exchanging one risk (small chance of ending up with less than you put in) with a much larger risk (earning insufficient returns on your investment and ending up with a smaller pot than could have been achieved). Both would have real impacts on your retirement spending, and you should be aware of both risks.

I would know what my pot will be! Sure, its modest. But there's no risk of not achieving it at all. Thinking about what it might have been if I took on risk and if the stars had aligned in my favour is of no interest. Thats what lotto or the casino is for. (For a very much smaller outlay).

Yes, you can be fairly confident of the pot size, but potentially little defence against inflation which could mean your known amount is worth less than you were hoping. If you've got a decent length of time before you need the money, a proportion of shares in your portfolio will do wonders for your returns without significantly affecting the volatility over the long term.

What I haven't seen discussed, is withdrawal of kiwisaver for your first home. If you are young and have a long time to retirement age, you are hardly going to want to put the money into a high risk fund, as when you withdraw it for a first home in , say 5 years time, you potentially may have less money in it, than you put in. So I would have thought that anyone who hadn't withdrawn for their first home, should initially have it in a low risk fund? Then once they have done their first home withdrawal, then is the time to move it into higher risk long term funds. But I have seen very little info on this strategy. However many people are only in Kiwisaver for the $500 the government pays in a year. Especially self-employed, who don't get any employer credits. But that will likely end at some stage, as kiwisaver benefits are being regally eroded, even though we didn't vote for those policy changes, when we voted the government in.

Uninterested,

I despair when I read comments like this.Even if you were to be near or at retirement age,having your Kiwisaver fund in very low risk holdings is not in your best long-term interests. Of course,you should have some part of your capital in cash at all times,but most of it should be in real assets;either property or equities.
I am 72 and almost 60% of my portfolio is in dividend paying shares and the income from them rises by more than inflation year on year.

I'm not advising anyone else to follow my own thoughts. Thats just me.
We shall see if share dividends continue to increase by more than inflation. And share prices too.

Uninterested,

I couldn't care less what happens to share prices. In fact,I would welcome a sharp fall,say 15%,as that would give me some attractive buying opportunities. I have gradually been taking some money off the table over the past 18 months for just that purpose. Now,a fall in dividends,as happened in the GFC,would reduce my income,but unless we are talkingArmageddon here,then I expect them to recover. I have been doing this for over 40 years,first in the UK and now here and have lived through a good many market upsets and I certainly expect to live through some more. What I am absolutely sure of is that you need real assets to outpace inflation.

These returns are terrible. Best to lock in for the long term when even the NZH is reporting the housing bubble could burst in the next two years.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1185...

Yeah well Goldman Sachs would know all about going bust wouldn't they ? a drop of 5% is a crash ? add all this together and you wouldn't be worried. You also have to look at the big picture, we are as far away from the rest of the world when the shit finally hits the fan and I can tell you that that's 100% guaranteed to happen within the next 50 years. New Zealand is a life boat in the Pacific so be thankful your already in it.