The repression of saver's returns gathers pace as the OCR is cut and more are signaled. David Chaston updates what has happened to the term deposit market

The repression of saver's returns gathers pace as the OCR is cut and more are signaled. David Chaston updates what has happened to the term deposit market

Another OCR review, another rate cut.

And for savers, that likely means lower term deposit offers.

This morning, ASB is the latest to reduce their term deposit rates.

And BNZ has cut its bonus saver rates for its RapidSave product.

The trimming of term deposit and savings rates should now come as no surprise to savers. The same cold wind blew through this sector in June when the previous OCR cut went through.

Rates for a one year term deposit are now -50 basis points lower now than they were at the start of 2015, and that is before the latest round of reductions flows through the market.

Term deposit rates are now as low as they were back in 2009.

The prospect is that they will go even lower, below the lowest we have seen since we started monitoring them in 2001. And using the RBNZ data to go back further, it is likely that savers won't have faced rate offers this low since the 1960's.

Term deposit rate offers are very 'repressed'.

The ASB rate changes this morning relate to their whole rate card as they have pushed through a -25 bps cut to nearly every term.

Earlier in the week, ANZ also reduced their rates, although not quite as aggressively.

The only opportunity is one that may close very quickly. That is because not every bank has yet announced their cuts.

On the savings side, BNZ today cut their Rapid Save rate to 3.65% from 3.90% - provided you meet the 'bonus' criteria. Otherwise their 0.10% rate still applies.

Use our deposit calculator to figure exactly how much benefit each option is worth; you can assess the value of more or less frequent interest payment terms, and the PIE products, comparing two situations side by side.

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

Term PIE rates are here.

The latest headline rate offers are in this table. Remember, these are not where rates will settle to, just where they are at 9:00am on Friday, July 24, 2015.

for a $20,000 deposit 6 mths 1 yr 18 mths 2 yrs 3 yrs 5 yrs
             
3.65% 3.85% 3.95% 4.05% 4.10% 4.20%
ASB 3.55% 3.70% 3.85% 3.90% 3.95% 4.05%
3.80% 4.00% 4.05% 4.10% 4.20% 4.40%
Kiwibank 3.75% 4.00%   4.15% 4.30% 4.70%
Westpac 3.75% 4.00% 4.05% 4.10% 4.20% 4.30%
             
3.90% 4.00% 4.10% 4.20% 4.30%  
Heartland Bank 4.00% 4.05% 4.10% 4.15% 4.25% 4.40%
HSBC Premier 3.50% 3.60% 4.00% 4.10% 4.20% 4.40%
RaboDirect 3.95% 4.05% 4.10% 4.15% 4.30% 4.50%
SBS Bank 3.90% 4.05% 4.15% 4.15% 4.30%  
3.75% 4.00% 4.10% 4.20% 4.50% 4.70%

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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21 Comments

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How do banks make money? Borrow cheaply, and lend expensively. So with Term Deposit rates so low, (and falling?) the only real question is:
Have the banks done their 'lending expensively' yet, or are they yet to do it?
(NB: A suggestion! Do what the banks are doing, and borrow cheaply now, and wait to 'lend out' later....)

Hmmmm locked in NZD TD at 4.6% in the middle of June for one year on the 90/10 strategy basis and play the hell out of the US futures market as and when - must admit it's all a bit tired and listless at the moment -should pick up September when schools start.

The Bank of England created a document (for dummies) that explains how money is really made. This whole idea that banks have to borrow money to lend money is stupid and moronic. Here is a link for you:
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/...

Our banks do borrow from foreign wholesale creditors to fund assets around a ratio of 140% to domestic deposits, which, as you rightly claim, are 'out of thin air' credits. These foreign liabilities are hedged with cross currency basis swaps, thus the excess NZD deposited by foreigners gained in receipt of imports exceeding exports are available to fund the C/A deficit with additional housing debt - the only substantial (bubble nonetheless) asset left on the books.

Trust me. I know how banks use their balance sheets to 'create' money. The banks can only legitimately issue money (credit to them, debt to you!) to the extent that they are allowed to by their capital ratios. That's what's being 'looked at' at the moment, and what the RBNZ and other CB's are concerned about. I posted last night about the ANZ upping its investor mortgage rates even into the face of expected lower cash rates. Perhaps that's the beginning of reigning the banks balance sheets in in this neck of the woods? ( keeping in mind that it's highly unlikely that the parent In Aussie will do what it won't impose on its subsidiary in NZ!)

They can and have raised more capital and badgered the authorities to lower the risk weighting attached to residential mortgages beyond what is considered prudent.gearing - hence a recent stability issue has arisen in Australia - I hope the RBNZ is not approving 1 to 70+ limits as noted in Aussie publications.

The way this money is created is important.......it is the individual who is actually creating the money but the creation on the ledger is done by the banks too many people gotta get a cut......

Basically the Government is hell bent on either discouraging any form of saving or destroying any old persons income .

It seems the basic white Anglo Saxon Protestant and Calvanist Christian principles of saving part of what you earn and living within your means that have served the Christian West so well for a millennia , are no longer the order of the day .

The Government had better beware , for its true that the country's savings of today is the country's Capital of tomorrow

Yes, it's geared positions hedged by derivatives to lower VaR, hence greater leverage at the expense of saving returns. It's commonly referred to as financialisation. Unfortunately there is a trend of global banks disassociating themselves from this acitivity - it could easily fall over without the citizens noticing until it's too late.

Doesn't really have anything to do with the government.

As someone whose peers are saddled with mortgage/student debt, I have little sympathy for those generations before me when it comes to expecting money for nothing.

The world is awash with money and the banking world today isn't interested in taking a hit to the bottom line in the form of paying old folks interest. It doesn't need it to make money anymore.

The Government had better beware , for its true that the country's savings of today is the country's Capital of tomorrow
That's how it used to be until my man Nixon solved that problem.

Pushing people to managed funds, index funds, risky ventures, etc. More fees/commissions and more heartbreaks ?

And we cry when the Chinese save heaps and spend it overseas for buying assets..

If I was an overseas investor, and saw NZs property market, and the returns, and that I could get upto 50% of a NZers household income paid to me on one property, I would be buying here too. It is pretty low risk the way I see it, because even if the housing market bubble bursts, you still have the house, and people paying you rent, and you can ride out the capital loss with inflation. No, the government has missed the boat. They say it is a lack of supply, but they have had nearly 3 terms to solve that.

and Labour did what before them? diddly so 5+ terms Of course its only seriously silly in Auckland, the rest of NZ seems flat.

I wonder what the second tranche of dodgy housing stock will look like? The first tranche being leaky homes.

Hail the QE.

People are certianly moving they money out of the bank, and into equities at the moment. Some more conservative shares have really rocketed up in recent weeks/months. Low deposits rates are good for the sharemarket, but they also help fuel the property bubble.

Whats happening is savers are being forced to take more risk.

And when all borrowers can't borrow anymore, to whom do they turn to? The prudent savers.