No country for old savers

Personal Finance

Another major bank adds momentum to the drift lower for term deposit rates, comfortable to be sitting lower than some key rivals. Now most of the OCR cuts have hit savers

24th Oct 19, 9:46am by David Chaston

While home loan rate changes have been quiet this week, a couple of banks have taken the opportunity to trim their term deposit rates again.

First, the Co-operative Bank announced some reductions, and today (Thursday) banking major ASB has cut almost all rates and by from -5 bps to a chunky -15 bps.

ASB's largest cut was to their three month tenor, down from 2.10% to 1.95%. although that is not as low as BNZ's already low 1.90% for that short term.

ASB also cut -15 bps from its four month rate taking it down to 2.20%. Actually, that is now -20 bps lower than the four month offer from Westpac at 2.40% and which is also available at Heartland Bank, and SBS Bank.

ASB's highest rate is now its nine month rate, down just -5 bps to 2.75%, matching main rivals ANZ and Westpac for that tenor. But ANZ is still offering 2.80% for six months as is Westpac, and as are a couple of challenger banks.

It is hard to know whether this ASB shift lower is in advance of an impending ASB home loan rate cut, or as a consequence of last week's actual fixed mortgage rate cuts. But the bald fact is that both are still stepping lower even if they are somewhat out of sync. Small regular reductions seems to be the strategy at all banks, enabling them to push through reductions to savers without too much negative publicity.

It is useful however to take a look at how one big bank has changed key term deposit rates over a longer timescale. Here is the data for ASB:

ASB as an example ...	OCR	*3 mths*	*6 mths*	*1 yr*
		%	%	%
October 26, 2018	1.75	2.70	3.25	3.45
Feb 22, 2019	1.75	2.70	3.25	3.35
April 26, 2019	1.75	2.60	3.40	3.25
July 26, 2019	1.50	2.40	3.05	3.00
October 24, 2019	1.00	2.20	2.60	2.60

drop from Oct-18 to Oct-19	-0.75	-0.50	-0.65	-0.85

[Update: There was an error in the above table where we had the one year rate as 2.50% which was wrong. Corrected above.]

Among the standard retail banks, the highest offer is currently the 3.00% at SBS Bank for a three year term. A 3% rate is now unique to SBS Bank for any term (although the Indian Bank of Baroda, and the Korean Kookmin Bank also offer +3% rates for long terms. But no other national retail bank does).

Among other offers, those from Chinese bank ICBC and by Heartland Bank stand out, with 2.90% for six months at the former, and 2.90% for 15 months by Heartland.

But it is hard to see any of these higher rates hanging around very long.

For readers looking for risk-free returns, we should also note that the 1.00% offer for the Government's Kiwi Bonds (for fixed 6 month, one year, two year and four year terms) is still available. As expected, Treasury cut it to this level soon after the last OCR reduction. Even after that full cut, the relentless chiseling away at bank term deposit offers means that the premium from commercial banks over this risk-free benchmark continues to narrow.

That the Government now offers Kiwi Bonds at a -50 bps discount to inflation is not a great signal to those who need low-risk interest income. That will mean capital decumulation by retired people will be accelerating. Longer life expectancy may well put earlier pressure on social services and income support than Treasury is expecting.

The updated rates in the table below are the highest offered by each institution for the terms listed. You will, however, need to check how often interest is credited or paid. That important factor is not filtered in the table and rates with various interest payment/credit arrangements are mixed here. However, our full tables do disclose the offer basis. (The codes are explained here).

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

All carded, or advertised, term deposit rates for all financial institutions for terms of less than one year are here, and for terms of 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 - 11 mths	1 yr	18mths	2 yrs	3 yrs
Main banks
ANZ	AA-	2.35	2.80	2.80	2.70	2.60	2.60	2.60
	AA-	2.20	2.60	2.75	2.60	2.50	2.50	2.50
	AA-	2.25	2.70	2.65	2.60	2.50	2.50	2.50
Kiwibank	A	2.35	2.75	2.70	2.70		2.60	2.60
	AA-	2.40	2.80	2.75	2.70	2.70	2.70	2.70
Other banks
Co-operative Bank	BBB	2.15	2.70	2.60	2.60	2.50	2.50	2.50
	BBB	2.40	2.80	2.80	2.80	2.90*	2.80	2.80
HSBC Premier	AA-	1.90	2.20	2.20	2.05		2.05	2.05
ICBC	A	2.45	2.90	2.80	2.80	2.80	2.80	2.80
	A	2.15	2.80	2.75	2.65	2.60	2.60	2.80
	BBB	2.40	2.80	2.80	2.75	2.75	2.75	3.00
	A-	2.35	2.70	2.70	2.70	2.70	2.70	2.70

* This is a 15 month rate.

Term deposit rates

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Source: interest.co.nz

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51 Comments

by lastlegs | 24th Oct 19, 10:19am 1571865543

maybe we could explore other ways of saving now that the robbers are on the other side of the counter at the bank.there are some things you cant avoid paying in full but others can be negotiable or reduced.plenty of competition out there.

by printer8 | 24th Oct 19, 11:19am 1571869191

Lastlegs
Despite it was not what Martin Hawes said, you were adamant that those 65+ should get their money out of KiwiSaver with urgency due to the impending collapse of the share market.
You also expressed that financial advisors could not be trusted as they had vested interest.
So now it appears that term deposits, KiwiSaver, share market, and financial advisors are all out.
Interested to know your thinking on options for a 75 year old past and beyond getting into investment property (given the constraints and implications of the bright line test) and gross yields of less than 5% (with net around 3%).

by dictator | 24th Oct 19, 11:36am 1571870189

For someone who is 75 they could have 25% in equities (those with dividend payments are probably a better choice), and 75% in a cash fund and TDs. Dividends can yield better gross returns, don't have any associated debt servicing and no time needs to be spent finding tenants or repairing flats.

by linklater01 | 25th Oct 19, 2:29pm 1571966952

dictator,

I disagree. That is much too high a percentage in cash. I am 74 and my portfolio is as follows: 58% equities with a strong focus on dividends, 22% investment property, 16% cash(PIE TDs) and 4% miscellaneous. If I am fortunate enough to remain healthy, then by around 80, I would expect to reduce my equity percentage to 50%.

by Yankiwi | 31st Oct 19, 12:52am 1572436320

I remember the simplistic platitude of 90 minus your age as the amount one should have in equities (or any high risk investments). The problem with any equity exposure at older age is the issues involved with a downturn, where one has to eat seed corn when valuations are low. By the time you are 70, you should have acquired enough savings to require a return that only matches inflation. If you have a high equity exposure, bad things tend to happen in a downturn as withdrawals for expenses can be very painful when valuations are down 30-40%.

I did a Monte carlo simulation quite some time ago using the past 100 years equity returns to understand what can happen. On average it is better to have high equity exposure. The issue with that is with what happens in the tails of the probability distribution. I went with a 90% probability of my funds outliving me assuming a 90 year lifespan which put me into primarily low risk investments for being late 50s to maximize the chance that my money will outlive me. A high exposure to equities at older ages can get one in serious trouble in a protracted downturn.

by lastlegs | 24th Oct 19, 12:49pm 1571874572

printer8,
what risk do you want to take?,what skills do you have?,if you are sitting in your carpet slippers in a retirement unit waiting for the abyss then the options are limited.you can come up with some original ideas of your own,we will be interested to hear them,people are generous,very few nit-pickers on the site.

by printer8 | 24th Oct 19, 5:15pm 1571890507

lastlegs
I am using - and recommend to others in a similar position over 65 - to use their KiwiSaver as a vehicle to invest at a risk that suits them. One of the reasons for this is than management fees are less than a similar bank managed fund. This could include even splitting their KiiwSaver between a more conservative for short term needs and a more growth fund for longer term investment and draw down from their conservative fund and balance (which they can do being over 65) this to meet their needs. This is sound and prudent and recommended by reputable commentators - such as Mary Holm - without a direct vested interest in doing so.
However, I was very alarmed at your response to Martin Hawes article a week or so ago when he indicated that growth KiiwSaver funds would be adversely affected in a market turn down. He did not advocate taking funds out of KiwiSaver; moving them to a more conservative fund could be more appropriate for those without a long investment outlook.
You were alarmist and acted like Chicken Licken claiming that the sky was falling and urging all over 65 to get their funds out of KiwiSaver without delay.
To me your comment was an irresponsible over-reaction scaremongering comment that needs to be called for what it was.
Can you acknowledge that your comment was not sound.

by bw | 24th Oct 19, 10:24am 1571865862

"capital decumulation by retired people will be accelerating." And not just retired people, and 'we' wonder why the famed Carnsoomer is cutting back on most things, expect essentials. Audaxes' link last night ( for those who caught it) illustrates exactly why lower rates and lower unemployment are confounding 'experts'. Those two are supposed to be mutually exclusive! More of both of those to come, as businesses who can't pay their staff higher/current wages let their staff go or - pay them less so they keep their job! More and more people with less and less to spend. Negative feedback to continue....Oh...and (stupidly) much lower interest rates to come; there is now no other viable option.

by murray86 | 24th Oct 19, 11:12am 1571868748

The exceedingly cheap money issue and apparently 'anti-saving' position of the banks makes me wonder. So I'll give the conspiracy theorists something to consider - is this some way to capture people into debt in a way that ultimately control of their life is lost? Somewhat Orwellian but if the savers are being actively discouraged, where is the money coming from? And if the lenders are happy to be effectively giving money out for bugger all return, what is in it for them? I doubt there is much altruism here so the possibilities are worrying!

by Foxglove. | 24th Oct 19, 11:53am 1571871204

It does seem ludicrous that after years and years of various governments lamenting continued poor saving by the public, it is now good policy and one is encouraged to borrow, more or less willy nilly, to stimulate the economy. To me that amounts to the same as using petrol to put out a fire.

by Camel's back | 24th Oct 19, 12:05pm 1571871947

Did someone say "conspiracy theorists"? Here...
Preservation of capitol is in the hands of the gods, And the future of money as we know it is circling down the debt hole.. so its hard assets all the way.
The key is future revenue... The banks just need a patsy to take the risk(or reward) and they have a payor for life, irregardless of the value of the asset.
So the game plan is... to get everyone in debt... Hows that?

by murray86 | 24th Oct 19, 12:28pm 1571873281

Too simplistic. To take some other perspectives around the 'creation of money' - banks don't actually create money, they create a line of credit. But somewhere that credit must be backed up with something credible. It used to be gold, but today it is ...what? The banks give a line of credit to a borrower. This credit is used to buy something and that borrower pays the seller of a product some or all of that credit for that product. That credit appears in the sellers account as a part of the balance. Question; if the sellers balance is say $10,000, is it real money or just more credit? What happens if that individual rocks up to the bank and withdraws that $10,000 in cold hard cash, or in this case notes? Are those notes still credit or are they real money? When and how did they change?

Where is this going? If you and I have money in the bank, or should I say a positive bank balance, what happens if the system collapses? Is the man with cash better off than the man with a bank balance? To me it looks like the Governments have lost control. They did this when the ceded control to the banks by getting rid of the gold standard. How do we as the people regain control?

by dictator | 24th Oct 19, 12:57pm 1571875034

I view real money as the amount left over if you cancel all credit/debt in the financial system. What ever is left is either in currency or digital money and that is the actual money in the financial system. Your comment seems consistent with Ray Dalio's concept of the economy as a whole in the link below.
https://www.youtube.com/watch?v=PHe0bXAIuk0

For where this might all go see the section in the video on deleveraging the economy.

by RickStrauss | 24th Oct 19, 2:10pm 1571879452

Think it's just that it does not benefit the financial industry at all for people to be living within their means, living in houses they've paid for, and saving money on top of that. Everything is aimed at having people pay increasingly more to the financial industry, whether it's in banking or insurance or investment advisors etc.

by murray86 | 25th Oct 19, 6:46am 1571939189

Rick it seems you and the other commenters don't want to explore motivations. I suggest it is obvious that the financial industry want people in debt, but at such low cost means apart from power over the debtor there is stuff all return on their money, which to me suggests there is other motivations. There are people behind the financial industry and some sources suggest it is a comparatively small group. I'll throw the conspiracy theorists another bone - are they the aspirants to be the 'new world order'? lending money is about putting spare money to work, and making a return of someone else's efforts. But lending money at close to zero interest or even negative interest produces not return, so why do it?

by SmoKey | 25th Oct 19, 6:55am 1571939753

What if all the borrowers default ? Like all depositors withdrawing their savings ? Can they bankrupt every borrower and still keep the economy running ? Like national debts written off in the past, one day all these private debts will have to be written off and all savings will disappear overnight. Back to square one and a new start ? Can't come faster...

by Believer1980 | 24th Oct 19, 3:21pm 1571883703

From a lender perspective, you can generate the same net financial outcome if you increase the total amount lent and reduce the cost of money to yourself. So it will not make a big difference to them. This can work for them if they are gambling with other people money and that they do not have to pay too much to get the needed money.

by Boatman | 24th Oct 19, 10:21am 1571865696

Well thank you for kaiboshing something that we had drummed into us for the past 3 generations .

Save , live within your means , be responsible with money , do for yourself what you can do for yourself and dont burden your Government .

Now we have done all those things and have a buffer of some money in bank ........... and its effectively worthless in terms of after-tax and inflation adjusted income

by bw | 24th Oct 19, 10:30am 1571866213

"Buy low, Sell High!" And what's low and worthless at the moment? Cash!
It's hard this contrarian bit, isn't it? But fear not, that cash you have is going to come into its own when what it buys tomorrow is far more than what it can buy today....

by dictator | 24th Oct 19, 10:41am 1571866873

According to an article published this week NZ is the 5th richest country in the world! How do you get rich? Borrow lots of money and buy houses.

by Nzdan | 24th Oct 19, 12:17pm 1571872670

We could keep revaluing all our houses upwards and claim a current account surplus. Worked with the Government and Kiwirail.

by Pragmatist | 24th Oct 19, 1:13pm 1571876004

We might need to get some tips from the govt printing outfit in Zimbabwe, need to know how to fit all those Zeros on the banknotes...

by Macawsley | 24th Oct 19, 8:34pm 1571902486

Sort of like National's entire economic plan , minus the surpluses
- the good old days

by HeavyG | 24th Oct 19, 11:27am 1571869668

The Ant was still in a better position than the grasshopper when winter came and he had a nice stash of food. He didn't cry that he was not earning any interest on his food stash, he just ate it and filled his belly.

All those lessons still apply and your savings are still a buffer, just one you will have to diminish over time now you cannot live off the interest.

If you think someone with a million in savings but only receiving interest at the rate of inflation is the same or worse off with someone with no savings then feel free to send your $1m my way (my offer of 50 cents on the dollar always stands).

by Foxglove. | 24th Oct 19, 12:48pm 1571874507

Don’t burden the government. Yes that is the rub. Are aware of a number of retirees intending to scrap Southern Cross etc. Reduced investment income something has got to give. Cut back on quality of nutrition too, heating as well? At that age and stage of life health problems likely compound and complicate. More burden for the public health system and hospitals, for sure.

by dictator | 24th Oct 19, 10:27am 1571866062

There is a deep poverty culture in the US that savers and retirees could learn from. Most live out of a caravan or motorhome with expenses around $5k USD per year. You can have quite a good lifestyle without a mortgage, rates and the expenses of a house.

It does result in people disengaging from or having very little interaction with the economy. It's not great for the economy, but manipulating interest rates to unsustainable low levels will always result in harm to the economy. Maybe we shouldn't be providing such large scale social welfare for banks.

by Mark L | 24th Oct 19, 10:33am 1571866425

I wonder why the Govt even offers it's Kiwibonds.
Given the "mail us a cheque with the form" method required to buy in I suspect they don't really even want people investing. Do they just feel obliged to offer it?

by David Chaston | 24th Oct 19, 10:38am 1571866730

Buying by cheque isn't the only option. They do allow you to electronically transfer them the funds as an alternative option.

by GV 27 | 24th Oct 19, 10:45am 1571867118

Man it sucks that all those people the elderly rely on to provide the taxes that support their superannuation can afford houses again.

by Nzdan | 24th Oct 19, 12:20pm 1571872821

But like the elderly, those who aspire to own homes are stung with low deposit rates when saving for the down payment.

by GV 27 | 24th Oct 19, 3:48pm 1571885287

Ah yes, I'm definitely better off if my tens-of-thousands of dollars of savings in the form of a deposit can earn interest at a higher rate if it means my many hundreds of thousands of dollars of mortgage incurs interest at an even higher rate. No issues there.

by HeavyG | 24th Oct 19, 4:28pm 1571887682

I was going to respond with the same comment but the fruit was too low hanging.

by Pragmatist | 24th Oct 19, 5:24pm 1571891055

It would be far better for higher interest rates to make it easier to save for the deposit, and keep the house prices down, even if the end result was the same outgoings after securing a mortgage.

by lastlegs | 24th Oct 19, 10:57am 1571867864

to me kiwibonds are more like a safe custody account,at least they dont pretend,like the ASB fastsaver acct"even a small amount is working hard for you" at 0.10%

by printer8 | 24th Oct 19, 11:24am 1571869442

That won’t give a retiree much of a return to supplement their superannuation.
Many retirees 10 years ago would have expect pretax tax return of 4 or 5% and planning to all ready eat into their capital over a 20 year or so period.

by Uninterested | 24th Oct 19, 1:06pm 1571875577

I'm sure that most retirees are very quickly coming to the conclusion that they cannot live off the interest any more like the good old days. So yep, just slowly use the savings up.
The gap between term deposit rates and Kiwibond rates is getting narrower, making the very safe Kiwibonds more attractive.

by Wrong John | 24th Oct 19, 11:16am 1571868962

Am not sure where to turn for a half decent return. TD's are worthless, other than not losing them (provided the banks don't implode), house prices are static but it's fair to say we've done well until now, not keen on renters as we've had a bad experience in the past. I might have to try Bitcoin, or gold, or I could go back to 'horticulture on the quiet' - medicinal only of course.

by HeavyG | 24th Oct 19, 11:26am 1571869585

You may want to think twice about bitcoin:

https://www.coindesk.com/bitcoin-price-may-test-7750-as-selling-pressur…

by CourtJester | 24th Oct 19, 12:39pm 1571873980

The 'test' went so well that BTC is now below 7500.

by frazz | 28th Oct 19, 3:12pm 1572228743

You failed the test ..noe at $9700

by davef | 24th Oct 19, 12:52pm 1571874760

Binary options might be a better bet than Bitcon. At least you got half a chance. If you have cash you don't expect to spend in the foreseeable future there are still reasonable returning shares on the NZX that even if they slashed dividends 20% would be better than the bank. As long as you're ok with capital risk to get the return. The longer term economic impact of an ageing cohort doing stuff like cancelling their private health insurance and for example not having petrol money to volunteer in, and fully participate in their communities etc will not be seen for some years.

by mfd | 24th Oct 19, 12:54pm 1571874855

Same as always - diversify. Some property (usually over-represented if you own your house), some shares, some bonds, some cash, and maybe 5% for fun things like gold or bitcoin if you really must. Properly exposure can be bought through the share market by buying REITs, but they're fairly pricey at the moment.

People who were appropriately diversified a few years ago will have the same problem finding yield, but will be soothed by their bond and equity holdings giving very generous returns recently.

by Andrewj | 24th Oct 19, 12:53pm 1571874819

if you are a saver, perhaps it helps if you know that the bond market is signalling serious trouble ahead, liquidity crisis should lift returns, or broke us.

by powerdownkiwi | 24th Oct 19, 12:58pm 1571875085

Investments are a bet that the future will deliver 'more

That was always going to cease, if the bets required even a partial physical underwrite. Even worse, if they required a concentrated-energy underwrite no available ex-fossil fuels.

So average returns on bets are plateauing, and will begin to turn negative. Just how long the system can be maintained (by mass belief) is the question. Mass delusion could cascade very quickly indeed.

by Audaxes | 24th Oct 19, 2:28pm 1571880513

Banks create money when they grant a loan: they invent a fictitious customer deposit, which the central bank and all users of our monetary system, consider to be ‘money’, indistinguishable from ‘real’ deposits not newly invented by the banks. Thus banks do not just grant credit, they create credit, and simultaneously they create money. Link

by kiwimm | 24th Oct 19, 3:16pm 1571883418

How about a guaranteed income fund like this - 5% income for life https://simplicity.kiwi/kiwisaver/funds/guaranteed-income-fund/

by Pragmatist | 24th Oct 19, 3:21pm 1571883693

Just got an email today about that one.. its only 5% for a few more weeks, then they are dropping it to 4% from the beginning of December.

by Te Kooti | 24th Oct 19, 3:42pm 1571884962

I took a look at this as it sounded too good to be true, and it is...

The return includes your capital, so if you invest $100k they can pay you $5k per year out of that for 20 years before they have even have to earn a cent of interest or dividend. This is a longevity product and I would personally write this product all day long to whatever sucker is interested.

by davef | 24th Oct 19, 3:42pm 1571884941

The limited number of these annuity vehicles are appealing, but it really would help if when one looks at what happens if the insurance guarantee company fails (linked intuit FAQ) at
https://simplicity.kiwi/assets/Uploads/omi.pdf
didn't give a page not found error. Hopefully a website is the only thing they can't get right in a fairly difficult investing environment.

by The_4th_estate | 24th Oct 19, 9:54pm 1571907285

If you want a good return invest in a movie about a guy who goes around killing people with a compressed air bolt gun...

by SmoKey | 25th Oct 19, 7:02am 1571940171

Soon the investment return will only mean return of capital (if possible) and nothing more.