News and Opinion, sponsored by RaboPlus

By Bernard Hickey

Here’s the short version: Term deposit rates are edging up despite a flat Official Cash Rate  (OCR). That’s because of hot competition between the banks for local deposits, but rates will rise even faster late next year as the Reserve Bank is forced to raise the OCR, possibly quite quickly.

My mother in law likes to sleep at night so I’m suggesting she invests only for a 6-9 month term at around 5% to wait for higher rates late next year. She also needs to see how the extension of the government’s deposit guarantee scheme from mid-October next year works out.

Here’s the long version:

Every Tuesday from now on I’m going to review term deposit and debenture rates and examine the sorts of choices savers will have to make.

Every saver is different with different personal situations and risk appetites, so I won’t pretend to suggest a single option for everyone. Instead I’ll talk about the things my mother in law needs to think about before making a decision. My mother in law is retired and supplementing her pension with income from bank deposits. She is conservative and anything I say is designed to keep my mother in law happy over the long term (ie to make sure she sleeps at night).

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By Bernard Hickey

Here’s the short version. Interest rates are near the bottom of their precipitous fall since the middle of last year. Investors wanting higher interest rates are now seeing higher long term rates for deposits and debentures, but rates will rise further yet. In the meantime, the best thing for the risk averse investor to do is to hunt for the best short term rates on offer by guaranteed, investment grade financial institutions and to watch closely what the government is saying about how to extend, replace or remove the retail deposit guarantee. (Updated to include the RBNZ’s decision to hold the OCR at a record low 2.5%)

The long version.

Sometimes my 60-something mother-in-law (I dare not ask her age) quizzes me about what she should do with her cash savings. Like many other New Zealanders, she and my father-in-law live in their own mortgage-free home and supplement their pensions with the returns from these savings.

My mother-in-law is very risk averse, but would like as high a return as possible. My comments below should be taken as what I would tell my mother-in-law generally about the outlook for interest rates and what’s on offer now rather than any sort of specific financial advice. Every person is different with different appetites for risk and different personal situations.

The outlook for interest rates is uncertain at the best of times, but the global and New Zealand economies are in a particularly volatile and pivotal period where interest rates appear to be bottoming out and are likely to bounce over the next year or two, particularly for long term rates.

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(Updated on April 8 to include latest savings rate increases and ‘What’s hot right now’ section)

By Bernard Hickey

Here’s the short version. Interest rates are near the bottom of their precipitous fall since the middle of last year. Investors wanting higher interest rates are now seeing higher long term rates for deposits and debentures, but rates will rise further yet. In the meantime, the best thing for the risk averse investor to do is to hunt for the best short term rates on offer by guaranteed, investment grade financial institutions and to watch closely what the government is saying about how to extend, replace or remove the retail deposit guarantee.

The long version.

Sometimes my 60-something mother-in-law (I dare not ask her age) quizzes me about what she should do with her cash savings. Like many other New Zealanders, she and my father-in-law live in their own mortgage-free home and supplement their pensions with the returns from these savings.

My mother-in-law is very risk averse, but would like as high a return as possible. My comments below should be taken as what I would tell my mother-in-law generally about the outlook for interest rates and what’s on offer now rather than any sort of specific financial advice. Every person is different with different appetites for risk and different personal situations.

The outlook for interest rates is uncertain at the best of times, but the global and New Zealand economies are entering a particularly volatile and pivotal period where interest rates appear to be bottoming out and are likely to bounce over the next year or two, particularly for long term rates.

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New Zealand’s love affair with fixed rate mortgages may be about to end, while many savers are rediscovering their passion for finance companies.

A few months ago I surveyed the market for term deposit rates and mortgages to see who had the best deals and whether to opt for long term or short term savings accounts and loans. So much has changed since then that it’s worth revisiting this area, in particular the ideas that fixed mortgage rates will always be cheaper than variable rate mortgages and finance companies are too risky to invest in.

So what’s changed?

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