Craig Simpson examines how the current average term deposit rates stack up against bank corporate bonds

Craig Simpson examines how the current average term deposit rates stack up against bank corporate bonds

By Craig Simpson

For months on end term deposit investors have tolerated receiving very little return on their fixed term deposits with the main banks.

The banks' focus has certainly been on the mortgage market where profit margins are generous but the tide appears to be turning back in favour of term deposit investors.

Last week Westpac announced increases to their term deposit rates and now lead the market and this morning RaboDirect announced increases to their fixed deposit rates.

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

With term deposit rates slowly rising and yields on bonds becoming more attractive which is offering a better current yield term deposits or bonds?

The table below outlines the average trading bank term deposit across a one to five year time frame and compares these to both NZ Government Stock and four main trading bank bonds with comparable maturities.

While the bond maturities will not exactly match those of the respective term deposits and interest rates are subject to change at any time so this data should be treated as indicative only.

as at 9 September 2013 1 yr 2 yrs 3yrs 4 yrs 5 yrs
           
ANZ - TD 3.85% 4.20%     5.00%
ASB - TD 4.00% 4.20%   4.75%  
BNZ - TD   4.40% 4.70%   5.30%
Westpac - TD 4.20%     4.70% 5.30%
All banks, average deposit rate 4.04% 4.26% 4.44% 4.70% 4.92%
           
NZ Government Stock   2.98%   3.89% 4.17%
ANZ bonds 3.50% 3.95%     5.30%
ASB bonds 3.40% 4.40%   5.20%  
BNZ bonds   4.10% 4.55%   5.35%
Westpac bonds 3.75%     4.75% 5.50%*

 

 

 

 

 

 

 

 

 

 

 

* Westpac have announced they intend to raise up to NZ$500 mln via a five-year fixed rate bond. Early indicative pricing estimates have the yield at approximately 5.50%.

My immediate observation is for terms less than three years, investors may be better off by holding a term deposit based simply on the yield available today.

There are however, important considerations to take into account before making a decision to invest into either a term deposit or bank bond. As with any investment decision there are risks and it is recommended advice be sought from a financial adviser.

For a more comprehensive list of the bonds currently available to investors along with indicative pricing please click here. You may also like to subscribe to our free daily fixed income newsletter which provides subscribers with a daily pricing sheet as well as bond and economic stories. If you would like to receive this email directly into your inbox please sign up below.

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