Term deposit rates are falling, with more cuts announced late this week.
Home loan rates have been falling too, and to a large extent these reductions need to be 'paid for' by lower costs for funds - and about two thirds of those costs come from the cost of customer deposits (but at proportion varies widely between banks).
We have recently assessed how the New Zealand banks treat mortgage customers using the same banks pricing levels in Australia as a benchmark. The conclusion is that on a fully costed basis, Kiwi customers get a better deal than Aussie borrowers.
Now we want to look at the relative situation with term deposits.
And here the news is even better.
Over the past week, banks in Australia have been cutting term deposit rates quite aggressively. And it turns out their reductions are more than their Kiwi cousins have so far applied.
Unlike New Zealand, there is real political and regulator pressure for banks to pass on the full OCR rate cuts. Some have (CBA and NAB) while others have held back of passing on the full cut to borrowers (ANZ and Westpac). These holdouts have been beaten up publicly for their decision, even though the reason they gave is that they were trying to protect savers from the full cut. It seemed to be an argument that got little sympathy in Australia.
In New Zealand, that argument was generally accepted with very little push-back.
The result is that Kiwi term deposit savers are in a far better position than their Aussie counterparts.
So for both mortgages and term deposits, it's Kiwi customers 2, Aussie customers 0.
The mortgage comparisons are here.
And here is the up-to-date term deposit comparison.
|for a $25,000 deposit||Rating||3/4||5/6/7||8-11||1||18||2||3|
By any measure, New Zealand TD savers are very much better off.
And that is true even after accounting for the difference between the current official benchmark interest rates. In Australia the RBA has its office rate at 1.25%. In New Zealand the RBNZ has theirs at 1.50%.
Apart from three month rates, all other advantages give about a +1.2% premium to New Zealand savers. That is a lot, and much more than we expected to find. That is almost the equivalent of the inflation rate. (In Australia the inflation rate is 1.3% and in New Zealand it is 1.5%.)
In New Zealand the range between the lowest and highest rate is just over +10 bps for the durations six months to three years. In Australia it is +30 bps. But that just means their lows are much lower.
Yes, term deposit rates are low in New Zealand and among our lowest ever. But we do have much to be thankful for as they are not 'impossibly low' as in Australia (that is, well below inflation). Yes, after-tax results will be even lower and make all comparisons less attractive.
Analysts both here and across the ditch expect each country's central bank to cut rates again and quite soon - the RBNZ is next reviewing its benchmark OCR on June 26, and the RBA's next review is on July 2 - so the levels and relationships in the above review will likely change, and lower, over the rest of 2019.
(This is the first time we have done this type of review so we cannot compare changes over time.)