With wholesale interest rates diving to new lows, banks are restraining their option to offer home loan rates down this lower path.
But they are not restraining themselves with term deposit reductions.
Offers at the very short end (1 month and three months) are very low indeed, mostly about 1% now.
Offers for real terms - six months to five years - have also fallen sharply this year and carded offers now look very slim.
However, if there is a silver lining, it is that they remain well above the inflation rate, so with term deposit returns at least you are not yet making negative real returns.
But those returns are still meagre.
No bank is offering 4% rates or above.
You would need a very large TD if you wanted to live off the interest from these instruments.
For example, a $1 million term deposit (or set of them) at 3.4% interest (say for two years), would return you just $23,019 per year after tax if you have a 33% tax rate, or $28,413 after tax if you have a 17.5% pa rate. You cannot live 'comfortably' at that level (although if you are retired, NZ Super will be a significant boost).
So $1 million is nowhere near enough unless you decide to decumulate. (Decumulation involves consuming your capital sum to maintain your lifestyle.)
One practical way to boost your earnings is to remain* in KiwiSaver and park some or all of your capital in one of these funds. You won't get the 'free' Member Tax Credit if you are over 65 or don't contribute enough, but still, these funds earn much better than a term deposit. As a conservative option, the best Default KiwiSaver fund returned about 6% tax-paid over the past three years. And these types of funds are still easily outperforming term deposits, even now.
The downside for some will be that Funds (any Fund) comes with a practical risk to your capital sum; it could go up, or down. Investors in retirement are often very wary of capital risks however. But when returns are very low, it may be a risk worth taking.
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.
The latest headline rate offers are in this table.
| for a $25,000 deposit | Rating | 6 mths | 1 yr | 18 mths | 2 yrs | 3 yrs | 5 yrs |
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AA- | 3.15 | 3.25 | 3.30 | 3.35 | 3.40 | 3.60 |
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AA- | 3.30 | 3.25 | 3.30 | 3.40 | 3.45 | 3.65 |
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AA- | 3.20 | 3.35 | 3.35 | 3.40 | 3.45 | 3.70 |
| Kiwibank | A+ | 3.00 | 3.30 | 3.25 | 3.40 | 3.60 | |
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AA- | 3.00 | 3.40 | 3.40 | 3.45 | 3.50 | 3.60 |
|
BBB- | 3.25 | 3.10 | 3.25 | 3.30 | 3.40 | |
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BBB | 3.30 | 3.40 | 3.40 | 3.60 | 3.70 | 3.80 |
| HSBC Premier | AA- | 2.80 | 2.90 | 3.10 | 2.90 | 2.95 | 3.05 |
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A | 3.30 | 3.40 | 3.40 | 3.45 | 3.55 | 3.80 |
| SBS Bank | BBB | 3.30 | 3.35 | 3.35 | 3.45 | 3.50 | |
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A- | 3.20 | 3.30 | 3.35 | 3.40 | 3.50 | 3.70 |
| UDC | AA- | 3.30 | 3.45 | 3.35 | 3.40 | 3.40 | 3.60 |
Our unique term deposit calculator can help quantify what each offer will net you.
* Remember, you can't get back into KiwiSaver if you cash out after 65, but you can remain in (even if you withdraw a portion of it).
Term deposit rates
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68 Comments
They used to exist in New Zealand. I thought the last provider stopped supplying reverse mortgages. If you could get one you don't make payments, an interest rate around 6-7% used to apply and the house is sold once you die to repay the loan.
The big draw back is the tended to quite rapidly destroy equity due to the compounding effect.
Heartland bank do them,
http://www.seniorsfinance.co.nz/?gclid=CNeOgb78nMwCFUccvAodRGAMgg
Things won't last for kiwisaver funds with high share holdings. When these elevated prices work their way through the system, the returns will steadily drop. It takes a while admittedly, because until now, the kiwisaver funds will have bought most of their shares at lower prices. But when they buy more at elevated prices, the maths doesn't look so good.
Hundreds of thousands of New Zealanders -recipients of 'Super', the handicapped, sickness beneficiaries, unemployed, small business owners living on the edge etc.- survive on a lot less than $20,000 per annum.
Overseas -Japan, Sweden, Switzerland etc.- central banks have pushed interest rates into negative territory, and commercial banks effectively charge their customers for holding their deposits.
The great impoverishment of the masses is underway, with extraordinarily low oil prices being the only factor preventing global collapse.
If oil prices were to return to anything like normal, i.e. US $100 to $120 per barrel everything would start to unravel very quickly.
.
My personal view is that our real economy is now so weak that I'd wonder on even getting to $80 sustained let alone $100+ is possible without triggering GFC mk2, though i prefer / expect a Great Depression mk2 myself. I just need to this mess to hold together for 2 more months, at most 3.
So a bank serves as an intermediary between savers and borrowers.
The bank is obliged to collect tax on interest paid to the savers. (Even though the savers have likely paid interest already on the earnings that they are now saving. Although obviously when you spend your earnings you pay tax. Although GST is lower than tax on savings interest, interesting that)
On the other side of the ledger however, the borrowers who are in the property investment business can potentially claim a tax benefit against the interest paid on their borrowings.
Property investors claim here http://www.nzpif.org.nz/news/view/57248 that it is actually a benefit to first home buyers trying to save for a deposit, that the landlord can claim a tax rebate against mortgage interest. As if they didn't the rent would likely have to rise to cover this difference. That is some warped logic there with some convenient omissions IMO.
It's all a bit rigged isn't it? I guess the country as a whole takes its cues from the government though. If the government wanted us to be better savers and less into borrowing for unproductive 'business', then they would set the signals thus.
Landlords cannot claim tax rebates against mortgages (they can in the UK).
Landlords, like every other hireage business, can claim the interest paid on business activities as a full business expense. Just like all other businesses.
so it's not a rebate, and as the loan is gradually paid back, the expense shrinks and the landlord pays more tax because they have better net profit due to the shrinking interest expense.
Also only the interest expense is claimable, not the whole loan repayment, and it is only for business expenses, not personal stuff unless you want IRD giving you a full forensic colonoscopy.
No, IMHO its the lack of return not the quasi value of capital. QE may have bubbled their assets (I dont think so myself) in value but without the return on that to live on its moot, a bubble. Worse when it pops they'll lose capital value hand over fist and the income will collapse further. Now it maybe that the wiser ppl will sell their assets to give them cash as cash isnt going to deflate in value as fast, but not everyone can do it, there has to be a greater fool buying.
So blaming QE for this mess when it is a reply to dis-inflation is simply wrong for me.
Do the maths, you are right 1% is 1% but that is only in respect to mainentance of your capital value, as far as day to day living goes a 4% return on your capital even losing 3% buying power a year to inflation is a lot more palatable.
But don't be too hard on yourself, even our ex Merchant Banker PM couldn't work this out. or doesn't want to admit it more likely
Not sure what you mean but a simple model ignoring tax where you have 1 million in the bank, 40K income required, 4% return, 3% inflation versus 1% return and 0% inflation, after 5 years case 1 has 995K in the bank (real value 850K) and case 2 has 847K in the bank, so who is better placed?
As I said it was more palatable but as it turns out it is also better finacially and this is ignoring and situation where interest rates change.
4 x 4 bedroom houses in PN at 250k each, returning 375 each = 1500/week = 78k.
Less rates 2200 each. Insurance 800 each if shopen around = 12k
=66k
Assume capital appreciation conservatively at inflation midpoint of 1.5% = 15k extra p.a tax free to cancel out maintenance considerations. History in pn shows something like 5% (extra 50k p.a tax free) to be more likely. Predicted population growth of 20% over next 15 or so years underpins value and likely see market rents increase 2%-5% p.a also so income likely to continue to increase over the retirement period.
Your rental return of $375/week is very high. $320-340 more the norm for a 4 bed in that type of purchase price range, e.g.,
http://www.realestate.co.nz/rental/search/bedrooms_min/4/districts/255/…
I go off medians from tenancy.govt.nz
You're sampling method used above is biased so not representative of population in general.
http://www.realestate.co.nz/rental/search/bedrooms_min/4/districts/255/…
Your results had 9 houses with 4 bed for rent under 350. My results returned 18 between 350 and 500.
250k definately possible in highbury to buy 4 bed full section that will rent for 370-380. Ive 2 there one I got closer to 200k returning 380. Nicer areas you'll pay 250-300 for 4 bed and get 380-420 a week. Slightly less yield but probably a better tenant so ideal for out of towners.
Sure, but your 18 results don't take into account the purchase price bracket. The feel I get for Palmymore recently is that rents are heading down (greater competition as more sales are going from owner occupied to rental) and sale prices in the lower end bracket are heading up. Not big changes, but nonetheless changes.
PN is similiar to Hamilton in that it has abundant land all around it - unlike Auckland (and even Tauranga to an extent). So factor in land availablity only being regulatory and factor in market disruption from an eminent revolution in building techniques - techniques tha mean new builds will be much cheaper than doing up a run down rental dog box - and your model looks risky. Auck is different.
Not at all true. Read the district plans. Fertile land that can be used to produce food and earn export $$ for these two farming regions is very difficult to rezone residential.
Same is true for flood prone land which rules out everything west of the city where flood gates spill to protect the city. This happening last winter keeping the city safe from mangone (wanganui decades behind in terms of flood protection infrastructure, hence got destroyed when wanganui river flooded during the same downpour)
Not talking about regulatory plans, talking physical space. Unlike Auck there is no ocean...you could build from Wanganui to PN pretty much anywhere.. . South of PN.. tons of space on pretty rubbish land..sand based a lot of it. The Waikato is full of new builds..all around the city, plus the outlyers, like Cambrige, Morrirnsville etc.
These new builds wlil get to the point (and I suspect are now close) where they are much better buying than the dog boxes being purchased and rented. A cheap quality pre built house in a box from China wont be so far away.
Limits of min size lifestyle blocks.
Flodoing planes are essentially harbours as far as building on them, can do it but expensive
Give me a 19 60s build over anything post 1980 any day.
DuxQuest plumbing forget it. I'll stick to a time they used copper.
Building industry are obliged to make things last 15 years so that's what they do. Hence leaky flimsy houses. Cheap Chinese ones? Good luck.
Who's saying its a big deal? Who's saying it's welly or auckland? I look for undervalued assets which seldom are 'a big deal'.. they are often under the radar as companies normally smaller cap.
If someone tells you about an undervalued small mid cap stock and provides metrics as evidence would you say "don't talk to me about that it's no Apple"
Presenting facts showing returns possible in pn is relevant to the Q of what to do with 1 mill. It's what I know about and invest in after 100s of hours of research over more than a decade.
Please share your knowledge if you are interested in providing posts of any value as opposed to the above.
Well I enjoy your comments about investing in Palmy Simon. It is good to hear success stories from the provinces and that certainly sounds like a good way of investing a million dollars to get a better than usual return. People are going to be looking at rental housing as a vehicle for providing retirement income more and more with term deposits having an unreliable return and finance companies being too risky.
Good for you, nothing wrong with strong positive cash flow so long as there is reasonable capital gain over time. What the capital gain as opposed to cash-flow exponents don't get is that banks won't lend them enough to buy a number of investment properties - due to low yield not supporting further borrowings. They run out of loan capacity pretty quickly. With high yield though, the income side of things gets better with each new property added, and this supports further ongoing portfolio expansion. The result is more income along the way and similar or better total capital gain due to the bigger portfolio base.
Most baby boomers wont leave their million in the bank and live off the interest they will spend it.
If you don't and end up in a rest home (no trust) then the rest home gets the money.
Funny how the wealthy always talk about how we need to save for retirement but never mention the rising cost of rest home care and how we should be saving for our rest home care. $50k + per year.
If you live for 20 years after retirement that's $1 million
Their money is tied up in a Trust so they dont care about rest home costs. The Tax payer can fund that.
"Their money is tied up in a Trust so they don't care about rest home costs"
With all this talk of offshore tax havens all we hear is a deafening silence with regard to this little rort happening right under our noses.
I had discussed this with my old dad. He said he had no need for such a thing as he had enough saved up to cover his and mum's care if they ended up this way plus he felt that, if you could pay you should pay rather than relying on hand-outs from the taxpayer. Unfortunately he was heavily invested with finance companies - lost the lot pretty much. A heavy personal blow to this proud old WW2 veteran and contributed to his death we believe.
Mum has alzheimers and needs constant care at considerable expense which we are having to pay from what remains of her estate. How come folk can get round this so easily. I recall that Jim Bolger had his mum on one of these dodgy trust things with the intend to bludge of the taxpayer when they are well capable of providing for her. Sucks!
...you could also ask the question, why do we charge the oldies for rest home care (which is actually a form of hospitilisation due to age related ilness) yet we do not charge very idiot who turns up at hospital. You know, the smashed jaws and teeth replacement from drunken brawls, the new veins in the arm for the drug user ... and on it goes. The oldies in care tend to die off pretty quickly...average stay aint that long
The 'trust breaking' laws around residential care are now pretty tight...so planning to use trust to avoid is no sure bet.
The biggie is of course National Super...other benfits pale by comparison
Yes it does seem a bit harsh as you say, it's not as if one sets out to end up in care.
We have tried to look after mum but it was too tough in the end, maybe the intention is to encourage the family to take care of them - fair enough but it is a big ask when they get too bad. Pleased to hear things are tightened up but talking with some whose quite wealthy parents are in there they just laugh like we're a bunch of idiots 'cause the government pays the lot.
Mike you should do some homework about Trusts and Rest Home costs. I was involved in giving advice over this topic for 30 years. It is always evolving and basically is tightening up all the time.
1. you need to be very very sick to get into a rest home and have the costs paid by the government who have you assessed . You must be frail and normally the time spent in care before one dies is around a year or so.
2. they are definitely tightening up on trust monies. You must disclose trust monies and they are making it harder all the time to avoid using them.
3. My mother went into care for 18 months and only had $500k in the bank and paid for her care. At the end of her life she had $490k. It is all about how you invest it. She only had national super on top and the cost was $52k per annum.
4. There is a lot of nonsense spoken about this topic. The reality is the government are continually making it harder to avoid trust funds being used for care costs.
I could have formed a trust for my mum. It would have been for rest home care costs only and I thought that was immoral.
re: Trust, you have to have a long established trust, and make sure you're not one of the beneficeries, otherwise you are supposed to receive that benefit from the trust for your care. some people were dumping their assets in a trust and crying poor, and wondering why that didn't work anymore...
Inflation is just another reason that rental housing stacks up well. If you assume that the value of your rental property at least keeps up with inflation, then your yield is also after inflation. And you don't get taxed on the inflation like you do in the bank.
Or simply, if you put $1 mil in the bank and withdraw 3%, your $1 mil will eventually be worthless. But if you put $1 mil into property and withdraw the rent after expenses, you will still have the property at the end.
Costs such as rates, insurance, maintenance, property managers , bank interest and your time, then having to deal with tenants and their personal living standards or rather lack of them and the risk of capital losses. You will find as many are are getting into PI are getting out. The main problem they face is tenants and the issues surrounding them. P is an an ever increasing risk as the manufacturing of it in rentals and the use of it is increasing daily in N Z. Being a PI has its challenges which will only increase as time goes by.
It is very easy to be talked out of becoming a landlord. Many of us were dragged, kicking and screaming into the business, vowing that it would only be a short term thing. Many years later we find that we are still in it, even expanding our portfolios. My advice is use good property managers and do some of the gardening yourself.
You make it sound so easy and idealic. Generally people cash them up when they get older and for good reason. Unlike equities you are dealing with people who generally let you down. People you think are good hard working professionals could be using P for example.
It's curious how reticent governments and central banks are about the social implications of low and negative interest rates. Every effort is going into destroying a culture of saving, getting people to spend whatever they have, or borrow and spend that. Spending is all that matters, spending everything available to restore growth. The choices are pauperism or debt servitude.
And where do the benefits of spending go? Upwards. Further enriching the already rich. And, then, when you've spent what you have, or have loaded yourself with debt, what then? You'll find that the health care you were relying on isn't there - or is there only for those able to pay for it. You'll find that the state pension is a basis for penury. In both cases, because the government doesn't have any 'spare' money either.
The outcome is two distinct classes. One extremely wealthy. The other practically paupers. And the middle class all but destroyed. And here's another profound implication of the policy. Healthy democracies depend on having as few as possible very rich, and as few as possible very poor, and thus as many as possible in neither position. So a functioning democracy too - working to the benefit of a broad and inclusive society - also falls by the wayside. No wonder policy-makers are keeping their cards close to their chest. They are dealing in social failure.
There's one option you've missed which Western governments are engaging in like mad to halt this malaise - immigration. We simply import loads of people to continue this mad cycle and this (on paper) solves the problem, for a while at least. Of course this completely screws over and impoverishes the existing population (especially younger generations), overloads infrastructure and completely changes the fabric of a society, but governments and leaders seem hell bent on this approach.
"It's curious how reticent governments and central banks are about the social implications of low and negative interest rates. Every effort is going into destroying a culture of saving, getting people to spend whatever they have, or borrow and spend that. Spending is all that matters, spending everything available to restore growth. The choices are pauperism or debt servitude."
You're assuming they have the required grey matter to be aware of the issue. Of course those that are aware are most likely in a position where it doesn't affect them so why would it matter.
I am more curious as to why the masses do not see the issue. Why this has been instilled into the way of life, the path to being "wealthy".
All in the name of economic growth and having ever increasing "living standards".
Yet we tinker with everything but the real causes. Shame on us.
Oh who would be a saver. "Hans Peter Christensen got some unusual news when he opened his most recent mortgage statement. His quarterly interest payment was negative 249 Danish kroner.
Instead of paying interest on the loan he got a decade ago to buy a house in this northern Denmark city, his bank paid him the equivalent of $38 in interest for the quarter. As of Dec. 31, his mortgage rate, excluding fees, stood at negative 0.0562%."
http://www.wsj.com/articles/the-upside-down-world-of-negative-interest-…
Please send me one million in cash and I will see if I can out last you all.
Large notes, I do not want my mattress to be too lumpy.
I do not mind being a test case...in fact I would really, really appreciate it.
http://arstechnica.com/business/2016/04/intel-announces-evolution-away-…
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