Savings bonuses wither as banks turn their focus away from short-term savers. At-call savers suffer the full OCR reductions, sometimes more

Savings bonuses wither as banks turn their focus away from short-term savers. At-call savers suffer the full OCR reductions, sometimes more

The attractiveness of bonus saver accounts has reduced markedly in the past six months.

Savers who use 'at-call' accounts have all seen their returns drop in line with the RBNZ OCR cuts.

In fact, as our second table below shows, some banks have reduced their bonus saver rates by even more.

At the same time banks have been reducing their term deposit rates.

But whereas a year ago, bonus saver rates compared quite well with one year term deposit rates, these days they compare more with ninety day term deposit rates.

There is now little 'bonus' in these special savings accounts.

The idea behind them is to encourage saving by rewarding savers with extra interest so long as additions are made to the account monthly and no withdrawals are made.

But banks are not focusing their competitive instincts in this area, and it shows.

Their current pitches seem to be in the 18 month TD area where they offer 3.60%+ or so. The incentive apparently is for a slightly higher rate if they can lock you in to a much longer term.

There is a lot of money tied up in savings accounts and very short term TDs. Letting interest rates paid slip for these at-call and short term accounts has a directly positive impact on bank margins.

A handful of banks offer Notice Saver accounts and the rates on these are often as good as bonus saver accounts.

Here are the current bonus saver rates on offer by banks today:

(These rates are taken from our comparison page here. And the change arrow  is from our last review a year ago.)

Bonus savers compared Minimum
Balance
Base
Rate
+
Bonus
interest
+
Potential
Rate
=
nearest
equiv.
Term
Deposit
September 5, 2016
    req'd % % % %
               
ANZ Serious Saver $1 0.10 2.65 2.75 3 mths 2.60
ASB Savings Plus $1 0.50 2.40 2.90 4 mths 3.00
BNZ Rapid Save $1 0.10 2.65 2.75 3 mths 2.60
Kiwibank On-line Call* $2,000 0.75 1.00 1.75 3 mths 2.60
Westpac Online bonus $1 0.05 2.70 2.75 4 mths 2.70
               
Co-operative Bank Step Saver $1 0.25 2.50 2.75 3 mths 2.95
RaboDirect Premium Saver $1 1.00 2.00 3.00 3 mths 2.85
SBS Bank Incentive Saver $1 0.15 2.85 3.00 9 mths 3.15

* Kiwibank also offers a Notice Saver account where you can earn 2.25% if you give them at least 32 days notice to withdraw and 2.75% if you give them 90 days notice to withdraw. Kiwibank Notice Saver accounts require a minimum balance of $2,000 for these rates to become effective.

RaboDirect (3.00% for 60 day notice) and Westpac (2.80% for 32 days notice) also have NoticeSaver accounts which may make for more flexible options, Kiwibank and Westpac offer them as PIEs which offer tax incentives for savers on the top tax rate.

TSB Bank deals with bonus interest differently to other banks. It's core everyday offer is its Premier account. This has a tiered interest rate offer that pays 1.35% for balances of less than $20,000, 1.55% of the portion of the balance from $20,000 to $35,000, 1.90% on the balance from $35,000 to $50,000, 2.50% on the balance from $50,000 to $100,000 and 2.65% on the portion over $100,000.

Even if you had $100,000 in the account all year you would not earn 2.65% gross from TSB Bank. You would earn $2,037.50 or 2.04% pa before tax. And they only pay this interest once a year at March 31.

We recommend you always look at term deposit, PIE or savings account returns on an after-tax basis and the best way to do that is to use our deposit calculator. This won't change the relative comparisons, but it will get you to focus realistically on what net earnings you will receive. When rates sink, 'surprises' hurt more than usual.

Here are the current bonus saver rates on offer by banks today:

(These rates are taken from our comparison page here.)

Bonus savers compared Minimum
Balance
Dec-14 Aug-15 Sep-15 Jan-16 Sep-16 change
September 5, 2016
    req'd % % % % % bps
                 
ANZ Serious Saver $1 4.25 3.75 3.75 3.20 2.75 150
ASB Savings Plus $1 4.25 3.65 3.40 3.15 2.90 135
BNZ Rapid Save $1 4.10 3.65 3.40 3.00 2.75 135
Kiwibank On-line Call* $2,000 3.15 2.75 2.50 2.25 1.75 140
Westpac Online bonus $1 4.30 3.60 3.35 3.05 2.75 155
                 
Co-operative Bank Step Saver $1 4.40 3.70 3.45 3.10 2.75 165
RaboDirect Premium Saver $1 4.55 3.90 3.50 3.25 3.00 155
SBS Bank Incentive Saver $1 4.25 3.75 3.75 3.25 3.00 125
                 
RBNZ OCR   3.50 3.00 2.75 2.50 2.00 150

 

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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Heads they win, tails you lose.

There is a lot of money tied up in savings accounts and very short term TDs. Letting interest rates paid slip for these at-call and short term accounts has a directly positive impact on bank margins.

Even more in O/N accounts? View RBNZ data

39.36% of reported "funding", in fact. Up from 35.60% in 2014, for the same calendar month.

Well, with the ever-present threat of having to take an OBR haircut, why wouldn't wary people have their money tied up for minimum periods or better yet, at call.
It's not rocket science.