There is still $82 billion invested in term deposits in New Zealand. While this is down from a peak of $104 bln in August 2019, it still represents 40% of household deposit assets ($209 bln) even if it's only 6% of total household financial assets ($1.427 tln). (RBNZ S40 and C22.)
The only reason deposits are placed at a fixed term is to earn a return, interest.
But these returns have been lean for the past two years.
However, they are improving, even if savers think the pace of improvement is too slow.
That may pick up soon if wholesale interest rates keep rising as they have done over the past few weeks.
That turn up has happened here, but there is no sign it will be rising anytime soon in Australia.
So now is an opportune time to check where we stand, and where we stand compared to savers across the ditch.
Here are the key positions in New Zealand:
| Term deposit rate | 3 mths | 6 mths | 1 year | 18 mths | 2 years |
| at least $10,000 | % | % | % | % | % |
| ANZ | 0.50 | 1.10 | 1.40 | 1.40 | 1.60 |
| ASB | 0.45 | 1.00 | 1.30 | 1.45 | 1.60 |
| BNZ | 0.45 | 1.10 | 1.40 | 1.45 | 1.60 |
| Kiwibank | 0.45 | 1.15 | 1.35 | 1.70 | |
| Westpac | 0.40 | 0.90 | 1.30 | 1.35 | 1.60 |
| Average these five | 0.45 | 1.05 | 1.35 | 1.41 | 1.62 |
| Bill or swap rate | 0.68 | 0.87 | 1.19 | 1.30 | 1.50 |
| margin from swap (bps) | -23 | +18 | +16 | +11 | +12 |
| NZ CPI rate | 3.30 | 3.30 | 3.30 | 3.30 | 3.30 |
Of course, other investment grade smaller banks offer higher rates, with the offers of banks like Heartland Bank and Rabobank up to +30 basis points above some main bank offers.
Clearly, current rates are all less than inflation. And that is also before income tax considerations are made, which will make it even more negative.
But as bad as things are for Kiwis, they are worse for Aussies who use term deposits for income.
Here is their situation:
| Term deposit rate | 3 mths | 6 mths | 1 year | 18 mths | 2 years |
| at least $10,000 | % | % | % | % | % |
| ANZ | 0.05 | 0.10 | 0.20 | 0.20 | 0.20 |
| CBA | 0.08 | 0.20 | 0.35 | 0.35 | 0.35 |
| NAB | 0.10 | 0.20 | 0.25 | 0.25 | 0.30 |
| Suncorp | 0.45 | 0.45 | 0.40 | 0.35 | 0.50 |
| Westpac (*=5 mths) | 0.07 | 0.30* | 0.25 | 0.25 | 0.30 |
| Average these five | 0.15 | 0.25 | 0.29 | 0.24 | 0.33 |
| BKBM or swap rate | 0.01 | 0.03 | 0.05 | 0.10 | 0.20 |
| margin from swap (bps) | +14 | +22 | +24 | +14 | +13 |
| AU CPI rate | 3.80 | 3.80 | 3.80 | 3.80 | 3.80 |
| NZ advantage % | +0.30 | +0.80 | +1.06 | +1.17 | +1.29 |
| advantage after inflation | +0.80 | +1.30 | +1.56 | +1.67 | +1.79 |
Just to be clear, the 'advantage' is relative and is for New Zealand savers over Aussie savers in the same type of term deposit instrument. It doesn't account for tax, and all are negative after inflation - just less so in New Zealand than Australia.
Missing block.
18 Comments
Just on 1% for 6months at ASB here as I figure rates are going to be better come February for sure. Not really worried about the returns to be honest with all the rising uncertainty out there. You pretty much have only needed a house in your portfolio as well to this point in time to quit worrying about gains.
Why would someone bother with a 3 month TD @ 0.5% when you can get 1% with a 90 or 60 day notice account with kiwibank or rabobank repectively?
https://www.interest.co.nz/saving/call-account
In fact you can have instant access to your money and still get 0.75% with rabobanks premium saver...(although you lose the premium in the month you take money out)
just somewhere to park it rather than risk it. $100k @ 1 & 0.5% respectively over 6 months difference in net return inconsequential really. Guess while it was there Bonus Bonds served in the same capacity. Play the chance of winning something tax free, nothing much to lose in terms of a TD return for same.
Not to mention an extremely generous pension system that basically overshadows TDs as a savings/investment option and a tax system that understands the effect of taxing up realisation as opposed to year-on-year gains like our Kiwisaver.
That sort of thing is inexcusable, as is not adjusting income tax brackets for inflation for a decade.
Haven't been involved with term deposits since
a) I discovered you become "an unsecured investor" in the bank according to their own small print.
b) the risks started to out-weigh any small pittance the bank was offering.
As things stand, there isn't any interest rate that is worth the risk for me personally.
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