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ANZ leads the way with cuts to all its term deposit offers with most of the popular terms now well below 3%. The outlook is for more reductions and other banks following

Personal Finance
ANZ leads the way with cuts to all its term deposit offers with most of the popular terms now well below 3%. The outlook is for more reductions and other banks following

At the same time as reducing its fixed mortgage rates (which included a market leading low one year fixed home loan rate), ANZ has cut its term deposit rates extensively.

In fact, with one 'special' exception, all its new rate offers are now below 3% for all terms to two years.

And that means that the popular six month rate is now 2.90%, a cut of -15 bps, and their one year offer is now 2.85%, also a cut of -15 bps.

These reductions come following the Wednesday RBNZ -50 bps cut to its Official Cash Rate.

Since the start of July, 90 day BKBM bank bill rates have fallen -41 bps. six month BKBM bank bill rates have fallen -37 bps, and the one year swap rate has also fallen -37 bps. More than half of these shifts lower have occurred earlier this week following the shock RBNZ signal. In that context, the ANZ term deposit reductions are less than you might have expected. And that is because they have restrained the pass-through to fixed-rate borrowers.

But this is just the early stage of the reaction period.

Many view the RBNZ action as a reaction to economic weakness, both here and offshore.

And the RBNZ has been very clear; it thinks its low rate policy will work and signaled that even lower rates may be necessary to get inflation up, and the economy's growth rising.

The upcoming Spring real estate selling season might be a tough one, one that accentuates home loan competition. Remember, banks only make money by lending and if lending volumes are soft, bank profitability will come under pressure.

If the Spring real estate period comes with tough interest rate competition, that will probably result in lower term deposit rates from here. Sub-3% rates are probably just the start of a track even lower.

And given inflation is running at 1.7%, after-tax, after-inflation yields from term deposits are likely to approach zero at some point if this trend continues.

For readers looking for risk-free returns, we should also note that the 1.50% offer for the Government's Kiwi Bonds (for fixed 6 month, one year, two year and four year terms) is still available. But Treasury is almost certain to cut this offer to 1.00% very soon. Just a guess on our part, but in the past this rate has been very responsive to the OCR changes.

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
mths
8 - 11
mths
  1 yr   18mths 2 yrs 3 yrs
Main banks                
ANZ AA- 2.50
2.90
3.00
2.85
2.85
2.90
3.00
ASB AA- 2.65 3.05 3.00 3.00 3.00 3.00 3.00
AA- 2.65 3.15 3.10 3.00 3.00 3.00 3.00
Kiwibank A 2.65 3.05 3.05 3.00   3.00 3.05
Westpac AA- 2.65 2.95 2.95 3.00 3.00 3.00 3.00
Other banks                
Co-operative Bank BBB 2.80 2.95 2.95 2.95 3.00 3.00 3.00
Heartland Bank BBB 2.60
2.80
3.00
3.05
3.10
3.15
3.20
HSBC Premier AA- 2.40 2.70 2.70 2.70   2.70 2.70
ICBC A 2.85 3.10 3.15 3.15 3.15 3.10 3.10
RaboDirect A 2.50 3.10 3.10 3.20 3.15 3.15 3.15
RaboDirect BBB 2.75 3.10 3.05 3.00 3.00 3.00 3.00
A- 2.65 3.00 3.00 3.00 3.00 3.00 3.00

Term deposit rates

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16 Comments

Not sure how fast they are all going to drop, last time I heard they needed to keep an increasing amount of capital.To low and people switch banks with large amounts of money like I did or they look else where for other investment opportunities and pull their money out completely. The banks now need to walk a tightrope and look at the possibility of reducing their margins.

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And this could be an unintended contributory factor to a credit crunch (if banks have insufficient capital to lend).

Desirable borrowers, as ever, will get the low borrowing rates, but with savings increasingly disincentivised, global uncertainties ever increasing, banks are even more likely to re-price risk.

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There are assumptions here that cutting the OCR is going to mean that both mortgage and term deposit rates will be falling.
I stand to be corrected on the following.
It is my understanding that somewhere near 70% of the source of bank funding is domestic and I assume term deposits make up a fairly sizable proportion of that.
I also think I recall mention on this site that NZ'ders savings rates are declining; I posted at the time that this wasn't surprising as those with cash would be looking at alternatives. I also recall Adrian Orr commenting in the last few days that investors will need to look at alternatives to term deposits to maintain satisfactory returns.
So from a banks perspective, it is not going to be simply a case of holus-bolus reducing term deposit rates and still attract funding to be able to fund even lower mortgage interesting lending.
I can see borrowers squealing that banks - as happened in Australia with their last cash rate cut - have not passed on all of the OCR cut.
Banks are still going to have to attract funds and simply lowering term deposit rates are not going to do this.
However, as retirees with cash funds my wife and I have already moved from term deposits in the expectation that the already very low term deposit rates will be going lower for the foreseeable future.

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So New Zealand's economy and Mr Ha face its watershed moment, dependent upon an increase in ( Auckland) real estate sales volumes this spring .
"So let us take an example , if you had $ 100 in the bank and in a year you only got $ 95 back, what would you do "

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If that $95 is going to buy you what today would cost you $200, you'd accept the 5% premium to stay in cash...and wait.
That's what low-interest rates is screaming at us! "*EVERYTHING is going to cost less....tomorrow" (* Even gold and shares etc. that today look like a safe haven)

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Exactly:
Hence, banks decline to lend to increasingly less creditworthy borrowers in a deflationary spiral environment and lower interest rates reflect that conservative practice - a classic vicious circle. RBNZ's price based, money-less monetary policy just rubber stamps corporate banks' risk preferences.

...the most important macroeconomic variable cannot be the price of money. Instead, it is its quantity. Is the quantity of money rationed by the demand or supply side? Asked differently, what is larger – the demand for money or its supply? Since money – and this includes bank money – is so useful, there is always some demand for it by someone. As a result, the short side is always the supply of money and credit. Banks ration credit even at the best of times in order to ensure that borrowers with sensible investment projects stay among the loan applicants – if rates are raised to equilibrate demand and supply, the resulting interest rate would be so high that only speculative projects would remain and banks’ loan portfolios would be too risky.

The banks thus occupy a pivotal role in the economy as they undertake the task of creating and allocating the new purchasing power that is added to the money supply and they decide what projects will get this newly created funding, and what projects will have to be abandoned due to a ‘lack of money’. Link-section II.-3

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EV's, too, especially after that most carefully-considered Feebate clicks in....all things come to Them as 'ave Patience

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Depends on what everything else is doing Cowpat. If there is a significant reduction in house prices and the global outlook is looking bad then I would pull most of my money and buy a house. The house may devalue but you still have a physical asset where as money in the bank could in theory disappear in an instant. At some point the banks are going to have to reassure those with deposits that their funds are secure if rates get low or zero because its not worth the risk. Gold price is on the increase its a sign it is all about to hit the fan.

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'If disinflation is built in, the returned principal in real terms will carry interest'...That is the theory.

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Cow pat
Lets take that $100/$95 scenario a little further.
If you put $50 in the bank and it is now $100 but it could or may not be only $95 next year.
What would I do? I would be very happy with results so far, accept a short term fluctuation, and anticipate that in 5 years that $100 - or $95 - is likely to be somewhat more.

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David is there any news yet on when our NZ Government is going to finally introduce the much talked about "Saving Deposit Guarantee scheme"? Obviously with savings TD rates bottom out to zero, savers are going to be more concerned about keeping their money safe from banking collapses and will need so incentive to keep saving, so any further updates on the NZ deposit protection regime?

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"RBNZ ... thinks its low rate policy will work and ...even lower rates may be necessary to get inflation up keep their property asset collateral values from falling off of a cliff".

There, fixed.

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Are we not forgetting with this narrative of people finding alternatives to money in the bank, no matter what they spend it on or alternatively invest it in it will become money in someone else's bank (assuming doesn't go offshore). The money available to the banking system in total will not change. The split between term and on demand could but that's it. Unless it's taken out and held as cash. The only way the amount of money in the banking system can reduce is if there is a debt write down, which will mean haircuts for people with deposits. Interested to hear others thoughts on this.

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In my view, different people's money works differently for them, even if it is all in the banking system. That is what drives the economic activity, positively or negatively. Not counting, of course, the credit creation by the Banks. People's money in the Bank is the basis for credit creation also, to some extent. So it has some effect, the way it is spread.

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Yes and this is the velocity of money. Some comments inferred that if you invest your money in something else instead of the bank then the bank would have less money, but whoever you pay your money to in exchange for another asset then deposits the money back into a bank.

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Lower interest rates = higher profits to skim over to the Aussie parents. Well done RBNZ. Too early in the cycle to drop the OCR so far so fast. Need to get better educated people at the RBNZ.
Less and less room to manuever if the economy tanks. Finance 101.

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