Over the pandemic period, at-call savings accounts became popular. From February 2020 an additional $25 billion was parked in them, raising these balances by 46%. They rose to $80 billion at their peak in April 2022.
Savers will have noticed recently that banks have simplified their account offerings, and that bonus or incentive-saver accounts are now the main offerings.
Some banks have even simplified these accounts to the point that the top interest rate is always earned. Others still maintain the penalty if you withdraw early or too often.
And a recent feature is that these accounts are offering sharply higher interest rates. Average bonus saver accounts now pay more than 3% for the first time since September 2015. The rise has come quickly. It was just 0.17% on average in September 2021 and didn't go over 1% until June 2022.
The current 3%* also stands out as a level that generally applied from 2009 to 2015.
But it is nowhere near the rates above 7% that were on offer in the few years before the Global Financial Crisis.
Oddly, balances rose when rates fell, and are falling now that rates are rising. Despite looking good in the chart below, savings account rates rate rises are nothing like the term deposit rate offers, which are drawing funds to those fixed term offers. SBS Bank currently offers 6% for a one-year term.
A longer term perspective shows that the current higher rates are back to 2015 levels.
But these new, "better" levels are no match for inflation.
So the after-inflation rates are now at about their worst level this generation.
It is no wonder savings account balances are falling again. This is another reminder why inflation is a thief of household income and wealth.
The problem with this inflation effect is that it induces desperate savers to seek better returns from risky options. And the desire for better returns induces charlatans to appear and make unsustainable offers to meet the need.
The best remedy is to reduce inflation in a sustainable way. And perhaps for banks to again offer inflation-positive savings options that they did for most of the period prior to 2017.
*Note, this article is only about bank savings accounts. There are some broker cash management accounts that currently offer over 4%.
20 Comments
The fact that most of the major bank economists are calling for a 50bps, after a disaster such as this, shows just how far behind Orr is with the OCR. Low interest rates in NZ has been an unmitigated disaster. Rather than much invested into productive industry, it's all been punted on high risk assets, now correcting.
The on call savings accounts should improve in the next 12 months as banks choose to lure you to the short end if they thinks rates will ease at the long end. With the OCR likely to be 4.75% next week, there should be an on call rate of 3.75 (probably Kiwibank or Rabo), and the Bonus Savers will soon hit 4%. Right now the banks are lagging on these (Rabo Premium Saver is the best at 3.75%)..
The best way to beat inflation is to opt out of fiat currencies and into a programmatic currency that has its total amount hard capped and its inflation rate preset for the next 120 years. No one can make more Bitcoin, currently inflating at 2.1% pa and dropping to 0.8% in 2024: https://www.lopp.net/bitcoinflation/
But what is Bitcoin etc currently valued and priced in? A Fiat Currency.
Locally, you could value a home for sale at 40 Bitcoin, and bypass the fiat bit, but how does that then relate to the prices of a Fergburger; 1/2000th of a Bitcoin? or a Toyota. Fiat offers a comparative, known medium of exchange - even for Bitcoin.
And what do the billion or so citizens of, say, India do to transact their business if fiat disappears? That's also why the Gold Standard packed up - not actually too little gold, but too many people.
Bitcoin is a medium of exchange and a store of value over a long term. You are correct that it is not yet a unit of account. But you cant force that straight away, it takes time to adapt, and once the price appreciates to a more stable level then yes it will start to be used to price goods in. The current system revolves around the USD and this will take decades to change, in the western countries anyway.
And each Bitcoin is divisible into 100,000,000 satoshies, just like dollars into cents.
No the gold standard packed up because of the physical limitations (portability and divisibility principally) so the gold got deposited into centrally controlled banks, who then issued paper claims to the gold. Problem there is you had to trust the banks not to issue more paper then there was gold. We all know how that worked out.
Bitcoin is infinitely divisible so everyone can use it, it will just appreciate in value per unit of bitcoin, the opposite of fiat currency which is infinitely producible because it has no cost to produce. So the more units of currency, the less each unit can purchase.
Each person can have a digital wallet on their phone and instantly send value directly to each other with no middle man and for zero fees.
For BTC, or any other cryptocurrency, to be a unit of account, you would have to remove all fiat currencies, and considering a number of nations have banned bitcoins, and other nations like to print more money so those in power can enjoy lavish lifestyles while the majority of the population starve, that just will not happen.
Since the entirety of the vertical market, from production to consumption, can never be entirely financed using cryptocurrency, it will never replace fiat. You could take the entire balance of NZ$ from the globe, convert it to an appropriate number of BTC with the current exchange rate, replace one with the other so that no NZ$ were in existence, and you still wouldn't be able to buy a latte from your digital wallet.
People who think cryptocurrency are going to replace fiat are dreaming. It's just another thing of finite supply, but unlike land, it isn't useful.
Let's have a look Gally. Dollar cost averaging a fixed sum into BTC monthly (using USD here). Based on the following, BTC has only clearly hedged inflation relative to fiat currency only for those who have accumulated for 4-5 years. So while I think you're possibly correct, only those who accumulate consistently and have diamond hands over the 4-5 time horizon are going to be ahead.
For last 5 years - +126%
For last 4 years - +80%
For last 3 years - +27%
For last 2 years - -20%
For last 5 years - 5.34%
The value never stops growing, because the unit of account it is currently being priced in, the USD, never stops decreasing in value. Zero is the ultimate lowest price for a fiat currency that costs zero to produce.
When a currency debases so much, people wont even accept it for Bitcoin, you will have to provide them something of value, such as a good or service, in exchange for their Bitcoin.
Absolute scarcity, a difficult concept for humans to get their heads around.
So long as the existing holders can keep an ever growing stream of "greater fools" buying bitcoin with ever more fiat (look at the historical returns), and the existing holders don't sell (diamond hands), the value never stops growing.
I think you inadevertently miss the point. I'm sure that you are aware that "new fiat money" largely happens through the creation of debt obligations. So essentially currency debasement happens through more people taking on these debt obligations. It is counterintuitive. Why would someone take on an obligation for money whose value is currently being debased? They're punting that the use of the fiat money will deliver returns greater than the loss of purchasing power in the currency and the somewhat misguided belief that inflation diminishes the debt over time (this has become one of the biggest cons IMO as inflation can only diminish debt if income grows at a rate equal to or greater than inflation).
Or you can try this:
Total Bitcoin in existence: 19,295,256
Total global users: say 100,000,000
Current price: $25,000 USD
Remaining Bitcoin that will ever exist: 1,704,744 (hard capped 21m supply. With an estimated 4m lost, potentially only 17m will ever circulate)
Potential new users: 100,000,000 to 7,900,000,000 (ultimately)
Increasing demand, with an inelastic supply schedule means that the value of each increasingly scarce unit will go up. The only way Bitcoin doesnt go up in value over the long term is if you think that it no one else in the world will find any value in it and less people will use it for one of its many different use cases.
(So these new users will be chasing after 1) the new Bitcoin that will be available 1,704,744 2) what is currently available on exchanges 1,917,734, which is dropping fast https://www.coinglass.com/Balance and 3) what ever Bitcoin comes back to the market as the price goes up and people want to sell their coins. Looks like more demand than supply to me)
I might have some of those missing BTC from when I was running mining software on the redundant hypervisors at a data centre in Naha, Okinawa. They are always on, in order to provide automatic failover functionality, but idle 99.9% of the time. Wasn't the fastest approach to mining, as this was before using dedicated GPU's became the norm, but it didn't cost me a thing. However, that was back in 2009 when BTC was considered an otaku fad, and I left Japan in 2011, so who knows what happened to them.
Real (inflation adjusted) interest rates are actually still negative because retail mortgage interest rates are in the 6% range while inflation is in the 7% range. Inflation got a long way ahead of Reserve Banks when it bolted, it's only now they have the opportunity to really rectify that issue.
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