Term deposit interest rates are falling further, with the premium for longer terms having almost evaporated; savers are still getting paid something for 'risk' - but this may not last

Term deposit interest rates are falling further, with the premium for longer terms having almost evaporated; savers are still getting paid something for 'risk' - but this may not last

ANZ has reduced a core set of term deposit rates today.

It has taken -15 bps off its six and seven month rate offers and -10 bps off its eight, nine and twelve month rate offers.

These reductions bring their revised rate card back to levels their main rivals have fallen to already.

All banks now have pricing strategies of doing rate cuts in quite small amounts, but often. And they keep some time between their mortgage and savings rate change announcements.

A feature of most term deposit offers now is the flatness of the curve. That means the rate incentives for longer term commitments are evaporating.

But ANZ still does have higher rates for longer terms. For four years, their offer is 3.20% and for five years it is 3.25%.

This time-premium no longer exists at ASB, BNZ, TSB or Westpac.

But it is still there at Heartland, Kiwibank and Rabobank with the 1-5 curves being +0.20%, +0.15% and +0.30% respectively. The ANZ 1-5 curve premium is +0.15%.

Of course, for most savers this is not relevant. The vast bulk of customer deposits are for terms of 1 year or less. The RBNZ data shows that 92% of retail term deposits (that is, not including call accounts) are for one year or less and 65% of them are for six months or less. Bank customers are committed short-termists for their term deposits.

But if you do need better yields and are prepared to go to a two year term, the highest bank offers now come from Heartland at 3.35% and Rabobank at 3.25%.

And don't forget that despite recent news reports that it is coming, we still do not have deposit insurance. It is coming but not till sometime after 2020. That means risk is still involved. And for that risk, you are getting a premium.

You can quantify that premium by comparing these bank rate offers with the Treasury's risk-free retail Kiwi Bonds.

Rates for those are 1.50% for six months, 1.50% for twelve months, 1.50% for two years and 1.50% for four years.

When deposit insurance arrives, essentially making bank term deposit offers risk-free, you can expect their rate offers to sink to close to these risk-free levels. That is what has happened in almost all other countries that have deposit insurance. Don't be surprised when it happens here.

The updated rates in the table below are the highest offered by each institution for the terms listed. You will, however, need to check how often interest is credited or paid. That important factor is not filtered in the table and rates with various interest payment/credit arrangements are mixed here. However, our full tables do disclose the offer basis. (The codes are explained here).

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

All carded, or advertised, term deposit rates for all financial institutions for terms of less than one year are here, and for terms of 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
8 - 11
  1 yr   18mths 2 yrs 3 yrs
Main banks                
ANZ AA- 2.75 3.05 3.05 3.10 3.10 3.10 3.15
ASB AA- 2.65 3.05 3.00 3.00 3.00 3.00 3.00
AA- 2.65 3.25 3.10 3.00 3.00 3.00 3.05
Kiwibank A 2.75 3.15 3.20 3.10   3.05 3.10
Westpac AA- 2.65 3.05 3.05 3.00 3.00 3.00 3.00
Other banks                
Co-operative Bank BBB 2.90 3.10 3.00 3.00 3.05 3.05 3.05
Heartland Bank BBB 3.05 3.25 3.35 3.35 3.35 3.35 3.40
HSBC Premier AA- 2.40 2.70 2.70 2.70   2.70 2.70
ICBC A 2.90 3.25 3.25 3.20 3.20 3.20 3.25
RaboDirect A 2.65 3.30 3.20 3.30 3.25 3.25 3.35
RaboDirect BBB 2.90 3.20 3.20 3.15 3.15 3.15 3.15
A- 2.65 3.00 3.00 3.00 3.00 3.00 3.05

Term deposit rates

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*Correction: ANZ reduces Term Deposit Rates to ensure NIM's are maintained to enable further Mortgage Rate Reductions.

There is a slight liquidity discount to the kiwibonds if you can sell them. (I am not familiar with this product).

You can see this premium/discount more starkly by comparing the yield on say ANZ bonds with its TD rates of the same maturity.

The point being its at the banks discretion whether to allow you to break a TD. Bonds can usually be sold in the secondary market (less brokerage etc) I.e. The bonds are easier to exit so they yield slightly less.

I am not a dgm but rather realistic.
The outlook for td rates seem most likely to be lower even without insurance implications.
A real corundum for retirees who had a nest egg to supplement super which a decade ago one would have anticipated to be a safe investment returning around 6%. That is already halved and likely to go lower - Australia is already under 2%.
I did not rollover my last td and have shifted it to KiwiSaver as a vehicle for exposure to equities. Despite the uncertain outlook of the local and global economies, and the volatility of events such as the trade wars, the return on tds means that the risk is now more worthwhile. I am hoping that falling interest rates - both locally and globally - will offer net support to equities vs the negative outlook. My wife just this month reluctantly has become a laNdlord again - despite the risks associated and not needing the incentive offered by low mortgage rates.
I have a “defined return” workplace superannuation scheme (govt) which personally gives me security of income, but there will be plenty of retirees out there with cash rich but sadly now really feeling the strains as they need to make cuts in lifestyle or look to far higher risk investments.
The bank of Mum and dad - as well as Christmas presents - most likely won’t be as generous as previously.

Retired Poppy, when does your life savings deposit term expire? Must be dreading it. In for a 40% haircut by the looks of it.

Should’ve invested in a rental in one of the regions, rents and HPI well up.

I am expecting RP to reconsider his investment strategy. From memory he was cock-a-hoop on about 4%+ due to mature 2000. A 40% haircut is a reasonably conservative estimate.

No great surprise. One TD matured on Monday, another a few months away. They won't be getting reinvested, not in NZ banks, likely not in NZ at all.

Let us know what you decide to do.


Some food for thought:

1) depending upon your liquidity needs, and
2) the amount of your deposit at the bank
3) if you believe that house prices are not going to fall by much in the following areas,
you could buy high yielding residential real estate with your excess funds.

If you do it with no debt:
1) the gross rental yield in Flaxmere, Hastings is 8.2%
2) the gross rental yield in Whanganui is 8.1%
3) the gross rental yield in Invercargill is 7.2%

Source: https://www.interest.co.nz/saving/rental-yield-indicator

Obviously need to consider costs of insurance, rates, R&M, but net rental yields are most likely higher than the bank. You can rent it out and have a good property manager manage it for you.

And there is also the possibility of rental growth in future years.

Oh well, put your money somewhere else.

Having similar issues of diminishing returns on tds. Not sure what to do to be fair. Considering a local cannabis float.

Just kidding.

Cannabis Float genuine returns plenty of growth potential. Not kidding

Stay short – the world is becoming an interesting and possibly volatile place.

Get into Hgh,Get the divie in a couple of months and then sell out if all goes to plan.

Says a lot about the economy when the best bet going is relying on peddling to someone who wants to get stoned.

If you are prepared to take the risk, FEI are offering 4.5% for $10k over 9 months. https://www.fei.co.nz/term-deposits/overview/

It seems to me that one of the biggest risks for depositors over the next few years is a depreciation in the NZ dollar.

I had no idea that the banks had been being so kind to us and that now - because of this evil Govt And Reserve bank - they are now no longer able to be so.
Bring back a Govt that ensures massive profits for the oz banks immediately!!!
Otherwise doom and gloom will descend on this poor little pathetic nation that dared to think that they were sovereign or even the equal of multi-nationals.