Banks are competing harder for term deposit funding, even as wholesale interest rates start slipping lower. Who is offering market-leading rates keeps on changing

Banks are competing harder for term deposit funding, even as wholesale interest rates start slipping lower. Who is offering market-leading rates keeps on changing

By David Chaston

Since our last review of interest rates on offer to term deposit savers, there have been a series of small but regular changes.

Generally this shift has been to higher interest rates, in a growing contrast to falling wholesale rates.

And these changes have shifted who the market-leading offerers are across a range of terms.

That is especially true for the shorter terms.

For the very short three month term, RaboDirect now offers 3.35% pa, a change that was effective from today (Thursday). That is way out ahead of any other bank, with seven rivals still back on 3.00%.

In the five, six and seven month categories, the clear leader is the SBS Bank 3.70% seven month offer, also a change this week. That rate bests the recent Heartland Bank offer of 3.55%, the previous market leader.

For eight or nine months, Heartland Bank's 3.70% nine month offer stands above all other banks, even the BNZ's 3.65% eight month offer.

And for a full one year term, three banks offer 3.60%. These are the Co-operative Bank, SBS and TSB Bank. This rate is far above what the four large Aussie banks are offering, even above the 3.50% currently offered by Kiwibank.

Most term deposit savers chose terms of one year and less and that preference is overwhelming.

But if you are prepared to go longer, the rates are higher.

For example, you can get 3.80% from the ICBC online option. You can get 3.75% from many other banks, including ANZ.

For two years, 4.00% pa is available at TSB.

And rates above 4% at banks are available for longer terms.

If you seek even higher rates, you will need to look outside bank offerers to non-bank institutions. Liberty Finance and UDC are investment grade offerers and the Liberty Finance offers are particularly strong.

And if you have a tolerance for even more risk, there are some sub-investment grade institutions with rates that reflect the higher risk perceptions involved. NZCU Baywide, F&P Finance (Flexicard), and FE Investments are well worth a review.

Wholesale swap rates have fallen sharply in the past month, and are now at their lowest point of the year. Lower wholesale rates usually effectively cap what banks can offer retail clients for longer term rates. But there is a growing disconnect between these wholesale markets and the local retail offers. How long that can last is untested at this point.

Wholesale rates may be options for banks, but they are not for savers. But you can access bond rates on the secondary market, which offer liquidity in a way fixed term deposit commitments don't. But for that flexibility, you do concede retail rate levels. Depending on how you assess risk, you may well judge the flexibility to get your capital returned when you need it via an early secondary market transaction as more important than the yield return. That is up to your personal tolerance for risk.

The benchmark 'risk free' return for savers is AAA Kiwi Bonds. They return just 1.75% for terms of six months and one year, 2.00% for two years, and 2.25% for four years. Any rate above that is a premium for risk. Credit ratings are one way to assess risk.

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.

for a $25,000 deposit Rating 3/4 mths 5/6/7 mths 8/9 mths 1 yr 18 mths 2 yrs 3 yrs
Main banks                
AA- 3.00 3.30 3.50 3.35 3.75 3.90 4.00
ASB AA- 3.00 3.50 3.35 3.25 3.65 3.90 4.00
AA- 3.00 3.10 3.65 3.15 3.60 3.85 4.00
Kiwibank A 3.00 3.30 3.60 3.50   3.85 4.00
Westpac AA- 3.00 3.30 3.35 3.20 3.60 3.80 3.90
Other banks                
BBB 2.95 3.35 3.55 3.60 3.75 3.85 4.05
Heartland Bank BBB 3.00 3.55 3.70 3.40 3.40 3.40 3.70
HSBC Premier AA- 2.50 2.80 2.80 2.90   2.90 3.00
ICBC - online A 3.00 3.30 3.60 3.40 3.80 3.80 3.85
RaboDirect A 3.35 3.35 3.35 3.40 3.70 3.85 3.95
RaboDirect BBB 2.75 3.70 3.55 3.60 3.75 3.90 4.00
A- 2.75 3.40 3.60 3.60 3.75 4.00 4.05
Selected fincos                
FE Investments B*   5.00   6.00 6.50 6.60 6.60
F&P Finance BB* 3.45 3.80 4.00 4.10 4.25 4.35 4.50
RaboDirect BBB- 3.60 3.95 4.25 4.30 4.35 4.40 4.45
NZCU Baywide BB* 3.40 4.25 4.25 4.25 4.25 4.25 4.25
UDC (limited acceptance) BBB 2.70 3.45 3.75 3.80 3.75 3.85 3.85
  * = these credit ratings are not investment grade.  

Our unique term deposit calculator can help quantify what each offer will net you.

Term deposit rates

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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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Rates are still way too low for savers .............. especially us Boomers and retirees who have now got money to save for the first time in our long hard working lives and years of scrimping .

If you're a Boomer and have only just started to save then you've done something very wrong. Besides, 2.5% interest is chump change compared to the capital gains in property and shares over the last 30 years that Boomers should have been putting their money into.

Many Boomer started to save late due to...divorce! Once the children had gone, the traditional ties that saw many of them 'stick it out' were loosed. And just see how far any property portfolio goes when it's halved! As the old saying goes "Half of enough, isn't enough"

Well...that will be somewhat of an unintended and unwelcome consequence for some of those who have willingly voted over and again for a government seemingly dedicated to pushing house prices higher. They'll be a bit more equipped to commiserate with young Kiwis, I guess.

The traditional kiwi savings plan used to be pay off the mortgage, pay for kids education and then once they move out it's time to save for retirement. Many still do that, however things have changed and it's not enough for a lengthy retirement that's expected these days.

Which could work if you bought your house and had your kids in your 20s. Not so viable now people aren't buying their first house or having their first kid in the mid 30s though..

The problem with shifting everything out until people are older (they don't have a choice in this) is that mortgages are set for the long term and that term now overlaps with retirement age. It's a bad combination. People might buy a house later but they should be paying it off faster but can't. The same with retirement savings people need to start early so it's an easy run up to retirement, saving in the last 5-10 years is a problem as most people won't be able to save enough to maintain their lifestyle.

I've worked with a few people that have reached 65 and said that they still don't have enough to retire so they're still working.

I would like to work into my 70s, but my concern is more that I won't be able to due to market conditions. Not so interested in retiring, really.

Become self employed - problem solved. ;-)

This is the correct option. I'm expecting a lot of people past retirement age to be running their own businesses or to be consulting.

Yes, it's just the matter of making sure I'm successfully self-employed not merely self-paid.

I wonder how many boomers have actually been saving ?

Its been really hard to save , with low wages , high taxes and inflation eroding purchasing power throughout the 70's and 80's

We had a 30 year mortgage, and at one stage the mortgage rate was over 20%, and brought up 3 children .

We have only been able to really save since about 2009 , and have done okay

Basically, most retirees with a modest amount in the bank are very cautious. They know if they loose their savings they will never be able to work to get it back.

Unfortunately, these people are just subsidizing wealthy property investors who borrow as much as they can so the interest is deducted from their high incomes.

This really annoys me and no self serving politician with rental properties will change this of course.

Term deposits return about 3.6% for 6 months while property investors are earning about 15% if rent and capital gains are included and pay virtually no tax.

Why are the KiwiSaver Cash Funds even lower than a bank term deposit?

How many of those are default funds that people are too lazy to transfer from? Sounds like cheap capital to me.

Interesting situation
At the time of the start of the global crisis I transferred my KiwiSaver to ASB cash for safety reasons
I was surprised that the rate of return was less than on call bank accounts. In part this was due to the fact that ASB KiwiSaver is managed by ASB Investment arm who presumably then lend at wholesale rates to their parent company and clip the interest received for doing so (deposit with the left hand and they charge for holding with right hand)
ASB commented some time later through the Herald that it was more important for savers to realise that they got the tax credit. No ASB, whether I won the money in Lotto or not the interest rate you pay is the key point.
The point of this is that money in KiwiSaver cash accounts are going to earn only wholesale rates less management fees and not that offers in term term deposits.

There is this thing called the income cliff. Which cuts in at retirement and lots of people walk blindly over the edge into thin air. You really need to have a few assets and no debt well before your 60s.
Many imagine they can keep up the income well beyond a usual retirement age and some do. But this is also the age of big surprises, sometimes it's health and sometimes it's redundancy. Sometimes you are employable, but mostly the grey haired brigade don't get considered for jobs

Banks are to heavily exposed to the property market ,chasing T/D to off set ,fix the OBR an depositers will be more comfortable .wouldnt fix long term !

The problem is they appear to be stiil reducing the short term and bonus saver rates. This forces people into making a decision of what to do with that money. They either move their money into something else, such as equities, but more likely property. Otherwise people get locked into long term deposits of over a year, which is likely where a lot of that money is now going.

As always you can do better than the standard advertised rate, you just have to ask.

Not all banks I have found although most will. They tend to try to at least match or slightly better other banks though. It also depends how desperate they are for money at the time.