ASB has today announced new longer-term deposit rates that will have investors needing high yield taking notice. Their two year rate has risen +0.40% to 5.40%, their three year rate has risen +0.60% to 6.10%, and their five year rate has risen +0.35% to 6.85%. These new rates are for term deposits of $10,000 or more, with standard interest-payment/accrual options. At this level, ASB has the highest rates for these terms for any bank in New Zealand. In fact, they have trumped every credit union and building society as well. Further, these rises will also put the squeeze on a number of finance company offerings.
You can see the latest term deposit rates here. It has been more than a year since ASB's long term deposit rates were last at this level. At the end of October 2008, they fell from 7.00% to 6.75% after being at at 8.00% for a while before that. At that time, the rate curve was flat, for 2 to 5 year terms. These new higher rates are also available as a PIE, enabling savers in the 38% tax bracket to achieve an effective yield of 7.73% for the five year term. An investment-grade credit rated bank return at this level will seem increasingly attractive for anyone with a finance company deposit, whether or not the finance company has the government guarantee. See all term PIE rates here. This move by ASB follows the new liquidity rules imposed by the RBNZ which encourage banks to source more funding locally, and to fund more at longer term periods. The market rate curve is steepening 'positively'. Expect ASB's competitors to respond.
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