David Chaston reviews the dramatically different fortunes of bank shareholders and bank TD customers in 2012, and finds one group laughing, the other weeping

By David Chaston

If you are a term deposit investor, here's something to think about.

I assume you are not happy with the returns you are getting from your bank term deposit.

As 2013 starts, a one year bank term deposit returns about 4.2% before tax.

The range is narrow; ANZ and ASB offer 4.1% for a $10,000 one year deposit, BNZ and Westpac offer 4.2%, and Kiwibank offers 4.3%.

Among the second-tier banks, the Co-op Bank is at 4.1%, TSB is at 4.2%, RaboDirect and SBS are at 4.3%.

Newbie Heartland bank is still offering 4.65%, perhaps reflecting the fact that it has only just been registered as a bank after being a building society for the past two years.

The tax that will apply to your interest earnings will reduce those interest earnings by 17.5%, 28% or 30% depending on your overall income level - and the bank will take the IRD part even before you get paid.

That 4.2% could become 2.94% pretty quickly, after tax. (Use this handy tool to work out your actual returns.)

For most people that hurts.

And it doesn't help much that annual CPI inflation is 'only' 0.8% - (we'll get the December CPI rate on Friday, January 18.)

Here's a thought: if you are investing in a bank term deposit, you are probably comfortable with putting your money in that bank. (You have the choice of  Kiwi Bonds, but they only return 2% gross.)

If you are ok with depositing it in a bank, why not consider buying bank shares?

There are three listed in New Zealand, and if you held these shares in 2012 you would not be complaining.

It is impossible to re-create your personal situation here (and I am not an adviser, so I wouldn't do it even if I could). But lets assume you had $10,000 at the beginning of 2012.

If you used that to buy ANZ shares on the NZX, you would have bought about 400 shares at NZ$25.10 each.

One year later, those shares would have been worth NZ$31.50 each. The gain would have been a spectacular 25.5%.

Plus you would have earned $896.00 in dividends over that year (in three payments of $0.66, $0.79 and $0.79 per share).

All up, your $10,040 (plus broker costs) at the start of 2013 would now be worth $12,600 and you would have been paid $896 in dividends (imputation credits and RWTx will apply).

If you had used that $10,000 to buy Westpac shares on the NZX, you would have also bought about 400 shares at NZ$25.20 each.

One year later, those Westpac shares would have been worth NZ$33.20 each, a gain of 31.7%. And Westpac would have paid you $1,000 in gross dividends (in three payments of $0.84, $0.84, and $0.82 per share).

All up, your $10,080 (plus broker costs) at the start would have become $13,280 plus the $1,000 dividend (imputation credits will apply and less tax).

If you had been really brave and used that $10,000 to buy Heartland shares at the beginning of 2012, you would have owned 20,400 of them because they only cost 49c each then.

One year later those shares are worth 69c, a 40% gain, and are valued at NZ$14,076. Heartland did not pay any dividend in 2012.

You could sell down your holding to generate cash, but the gains you realise when you sell will become taxable.

Whatever way you look at it, those gains would have been far greater than the NZ$430 gross a term deposit would have earned you. (The average one year TD rate at the start of 2012 for the main banks was 4.3%.) Heck, the dividends alone from either ANZ or Westpac would have been greater.

And also far greater than choosing a term PIE, which can offer slightly better effective interest rates than regular term deposits.

Buying shares is not a risk free option of course.

If any main bank failed, there is an implied government guarantee for depositors and small depositors would be unlikely to take any haircut from the RBNZ OBR processes. Shareholders would be wiped out, however.

And more likely, the value of the bank shares could fall, and/or the level of dividends could be reduced.

Do you think that will actually happen in 2013?

If we use 2011 as a guide - being the tough year for banks after the GFC pressure worked their way through the economy - ANZ's share price started that year at NZ$26.85 and ended the year at $25.10 for a small loss. It paid dividends of $1.40 per share during that year, or $560 for 400 shares. Westpac's share price started 2011 at $25.13 and ended at $25.21; it paid $2.36 per share in gross dividends, or $944 for 400 shares.

In 2011 you would have taken a bath if you had Heartland shares. They started that year at NZ$0.78 and ended 2011 at just $0.49 each. Even at the beginning of 2013, they are not yet back to the $0.78 level.

There you have it. History is never a reliable guide for the future. Whether bank shares are right for you will be something you will need to decide for yourself. What is your risk tolerance?

In 2012 however bank shares far out-performed bank term deposits.

Bankers 4,280, savers 430.

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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On the other hand...when the can, can no longer be kicked down the road and the bank balance sheets turn septic..your bank shares could and will dive in value..and you will not get a dividend....how you like them apples.

Exactly Wolly! Them apples, not very tasty...

Citigroup lost over 4/5 of it's worth a few years ago, after a stellar rise in which most insiders sold out way before the bottom.

Share holders lost out; bond holders, were bailed out! 

Who do we wanna be...?


Tell me the last time ANZ didn't pay a half-yearly dividend Wolly.  Not once has it missed in over thirty years (refer ANZ website) and probably a lot longer than that.

Tell me, how many years ago was it that ANZ would have gone belly up without the Government Guarantee, put up by taxpayers. Give you a hint, wasn't that long ago, try 2008. That's only 5 Years.


ANZ (and the other banks) would not have gone 'belly-up' without the Crown Guarantee. That was put in place by the then Labour Govt to stop capital flight (in response to a similar scheme in Australia).  The banks were,  and still are well-capitalised.

If they were so well capitalised, then why did they need taxpayer support? Either you have the money to pay back depositors when due, or you don't. Really quite a simple concept.

The banks were always able to pay their depositors, Crown G or not.  Don't forget, bank shareholders were not covered by the G.  The point of the Crown G was to stop capital flight at a time of unprecedented financial unrest,  and the G to that extent was very successful. It was a different story with the finance companies, but that's not the point of this discussion. The banks did not need one cent of taxpayers' money.

Long term ownership of high quality shares gives both superior yield and capital growth to the holders.

There you have it. History is never a reliable guide for the future. Whether bank shares are right for you will be something you will need to decide for yourself. What is your risk tolerance?


In all seriousness, it is difficult to imagine a backdrop more poised for the extraordinary.  Bolstered by unprecedented global monetary radicalism, the global Bubble gathered important momentum in 2012.  This ensures that the dysfunctional “risk on, risk off” (“roro”) speculative dynamic turns only more unwieldy in 2013.  Policy measures guarantee that the historic “crowded trade” in international risk markets will only more forcefully crowd the manic crowd on one side of the crowded boat – or the other.   This implies fatter “tail risks” – with emphasis on the “s” – the plural – of left (Bubbles burst) and right (inflating Bubbles turn much more unwieldy) “tail” developments.  

Let’s start with a little “right tail” pontification.  In simplest terms, how crazy could things get this year?  I recall how crazy the SE Asian Bubbles turned in the fateful post-Mexican bailout year of 1996.  Then NASDAQ almost doubled in the crazy, post-LTCM bailout speculative melee of 1999.  And when the Fed made it clear that it would disregard mortgage and housing Bubbles, excesses grew exponentially – 2004, 2005, 2006… until the Bubble finally began to collapse under the weight of subprime Credit craziness in 2007.  The long history of speculative Bubbles favors the scenario where they end in self-destructive “blow-off” excess.  Read Full Article- CBB

lol at Rabo being called 2nd tier.

Given the massive central bank printing going on in the world is clearly supporting asset prices, then the big four banks should find it relatively easy to at least maintain or lift their loan books in Australasia this year. Apart from NAB owning a loss making UK bank, I don't think the big four are massively exposed to really toxic assets like European banks, or sub prime non payable loans. Maybe some marginal mining investments. Maybe some dodgy stuff in Asia. But probably small beer.

Although their total shareholder return in 2012 ranged from NAB at 14% to Westpac at 33%; my broker's website (commsec) shows avarage annual returns over 5 years ranging from 0.6% at NAB (UK bank effect again) to 6,7,and 11% for ANZ, WBC and CBA respectively. PE's in the 10-14 range (implying a 7-10% annual return if there was no profit growth) suggest they will likely give at least that sort of return over the next year or two. Dividend yields are at 5-7%, and all four at least hold on to them fairly passionately.

When it seems a no brainer, maybe it's not. Decide your own risk levels, if you jump in, best to spread over at least 2-3 banks, in case any one has something dodgy in the closet.

Your dividend details are wrong, ANZ pays its dividends half yearly, with details on their ANZ website.  66c and 79c AUD/share in July and December.  Also interesting to note that the dividend has increased in each of the past four years,

And what's this about paying tax on the capital gain? (if sold),  Not necessarily, only if you are a 'trader' rather than an investor.  If the capital gain is not income,  then no tax is payable.

Owning shares is no-brainer.  The yields are better, liquidity is better, not subject to interest rate risk, and your capital will grow with earnings growth.  Better diversity,  income can be spread (timing of dividends) and there is no penalty for early repayment,  as with bank TDs.

As a former banker and now sharebroker (and AFA), I would plump for equities any time.

David you're  wrong , Heartland did pay a dividend in 2012. 1.5 cents on 21/12/12