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.
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|
|ICBC - online||A||3.00||3.30||3.60||3.40||3.80||3.80||3.85|
|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.