Low deposit rates with no end in sight

Personal Finance

Three more banks have cut term deposit rates this week and 3% offers are now very rare. We update where TD rates are being pitched now and point out the outliers

12th Sep 19, 11:25am by David Chaston

So far this week, three banks have cut their term deposit interest rates.

They include ANZ, the Co-operative Bank, and now ASB.

There may be others to follow.

These rates are still declining steadily since we last reviewed them on August 15. The corrosive impact of the 50 basis points Official Cash Rate rate cut keeps on working through, especially as these very same banks have been trimming their fixed home loan rates as well.

The latest reductions come even as wholesale rates have started turning up. In fact in the past week one year swap rates have risen +7 bps and two and three year swap rates are up +10 and +12 bps respectively off of record low levels.

But the 90 day and 180 day bank bill rates haven't moved in the same way and are now at their record lows.

For the popular ~six month rates, the best offers are from Heartland Bank at 3.00%. They also have the highest ~1 year offer at this time at 3.05%.

But no main bank offers any tenor at 3% or above, all the way out to five years.

ANZ's eight month 2.90% offer for eight months stands out among the main banks. And apart from Heartland, it also stands out among the challenger banks too. It is unusual when other banks are prepared to pitch their offers below that of the largest.

Almost no bank is making any attempt to offer higher rates for longer terms. In fact, in most rate offer cards, the highest rates are now at about the nine month tenor. 'Specials' are rare.

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 1.00% offer for the Government's Kiwi Bonds (for fixed 6 month, one year, two year and four year terms) is now available. As expected, Treasury cut it to this level soon after the OCR reduction. Even after that full cut, the relentless chiseling away at bank term deposit offers means that the premium from commercial banks over this risk-free benchmark continues to narrow.

That the Government now offers Kiwi Bonds at a -70 bps discount to inflation is not a great signal to those who need low-risk interest income. That will mean capital decumulation by retired people will be accelerating. Longer life expectancy may well put earlier pressure on social services and income support than Treasury is expecting.

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-	2.30	2.80	2.90	2.75	2.70	2.70	2.70
	AA-	2.35	2.80	2.70	2.70	2.60	2.60	2.60
	AA-	2.35	2.80	2.75	2.70	2.60	2.60	2.60
Kiwibank	A	2.35	2.90	2.75	2.75		2.70	2.70
	AA-	2.40	2.80	2.75	2.70	2.70	2.70	2.70
Other banks
Co-operative Bank	BBB	2.55	2.70	2.70	2.75	2.75	2.75	2.75
	BBB	2.80	3.00	3.00	3.05	3.10	3.15	3.20
HSBC Premier	AA-	1.90	2.20	2.20	2.20		2.20	2.20
ICBC	A	2.55	2.90	2.90	2.90	2.90	2.95	3.00
	A	2.15	2.90	2.85	2.85	2.80	2.80	2.80
	BBB	2.50	2.85	2.85	2.75	2.75	2.75	3.00
	A-	2.40	2.80	2.85	2.75	2.70	2.70	2.70

Term deposit rates

Select chart tabs

Source: interest.co.nz

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47 Comments

by Nzdan | 12th Sep 19, 11:40am 1568245208

The Silent Generation to their Children:"Squirrel money away so you can live comfortably when you hit retirement age"

Banks 2019: "LOL"

by CourtJester | 12th Sep 19, 12:42pm 1568248971

Squirrel money away so you can bail out the people who spent more than they had on stuff they didn't need.

by Ocelot | 13th Sep 19, 8:24am 1568319856

If by "stuff they didn't need", you mean exhorbitant yet basic housing, then yes.

by J.C. | 12th Sep 19, 2:28pm 1568255335

"Squirrel money away so you can live comfortably when you hit retirement age"

The irony is that the ASB is still trying to groom future customers by teaching kids about the virtues of saving ('Children get to see their savings balance grow.' https://www.asb.co.nz/banking-with-asb/clever-kash.html).

Everyone knows. Saving money in a bank is a mugs game.

by theglc | 12th Sep 19, 12:24pm 1568247880

deflation surely not too far away

by tothepoint - d… | 12th Sep 19, 12:47pm 1568249234

Alas, certain people can only see the gloomy side of anything.......

TTP

by bw | 12th Sep 19, 1:28pm 1568251712

Gloomy? Deflation is fabulous....for anyone without debt, of course....(And, yes...it's coming...Proof? "That will mean capital decumulation by ....people will be accelerating.")

by Yvil | 12th Sep 19, 3:26pm 1568258768

Deflation of what is the question? Deflation of term deposits? Could sadly be on the way, if so it will be at the expense of inflation of Real Estate and shares. Is it fair? Certainly not. Agreed, it can't go on indefinitely but it will go on for much longer than many expect, it has already gone on longer than some expected on here.

by bw | 12th Sep 19, 3:42pm 1568259778

Term Deposits can actually 'inflate' as interest rates fall.

As the price of what today's Term Deposit investment could buy falls, tomorrows maturing Term Deposit is increased in value.
eg: Lock up $1,000,000 today at 3% and assume that an alternative would be to buy a house today that would cost the same $1,000,000, and at maturity that house might 'only' cost $500,000, yet the maturing term deposit is still nominal valued at $1,000,000 plus accrued interest over the term of investment.
Voila! 'Inflation'... So, yes, as you say, Deflation of what....Is that gloomy, though, is a better question?

by youngdumbandbroke | 12th Sep 19, 3:56pm 1568260571

Provided negative interest rates dont occur

by bw | 12th Sep 19, 4:18pm 1568261890

Even if that Term Deposit is at minus 3% p.a., that same $1,000,000 will still yield $970,000 p.a. at maturity, against the future price of an asset that deflates from $1,000,000 to $500,000. That's one of the reasons German banks, say, are prepared to lock up funds at negative interest rates.
In reality, though, sticking cash in a safe at home starts at about +1%. Shy of banning cash ( which could happen) that's a way off yet.

by Pragmatist | 12th Sep 19, 6:08pm 1568268483

"In reality, though, sticking cash in a safe at home starts at about +1%."

For some its started when TDs went under 3%. Precious Metals, NZ Cash, and Foreign Cash in a safe deposit box.

by SmoKey | 12th Sep 19, 4:56pm 1568264219

Time for NZX to introduce trading in customers' term deposits ?

by mikekirk29 | 12th Sep 19, 1:33pm 1568252036

Ah, so more debt is good and falling wages for working class in real terms since 1973, in the Western capitalist economies, is good.

by mikekirk29 | 12th Sep 19, 1:36pm 1568252162

https://apc01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwolfs…

This is where more debt gets you: keeping the poor spending when wages are not rising.

by mikekirk29 | 12th Sep 19, 1:32pm 1568251947

This ends in a bond market rout.
Bond markets are way more dangerous than equities.
MBS as equity plaything for making money out of people's mortgages blew up world last time.
Nothing has changed, just more debt and lower yields.
When bond market implodes, the asset-inflation will be demolished and lots of pensioners will lose a lot of money

by tothepoint - d… | 12th Sep 19, 2:24pm 1568255053

Still more gloom.......

TTP

by J.C. | 12th Sep 19, 2:37pm 1568255875

Gloom is a subjective notion. Calling someone a DGM is more about your own insecurities.

'The gold price is up 10+% this year.'

Is that gloom? Yes: A rising gold price usually indicates all is not well in the wider environment. No: For the small minority who are exposed to the gold price.

'House prices go up every 7-10 years'

Is that gloom? Yes: Younger people have to trade off more of their human labour than ever before for housing costs. No: Housing bubbles are strongly correlated woth strong consumer spending, which juices the economy and keeps everyone happy until the bubble disappears.

by northman46 | 12th Sep 19, 3:50pm 1568260243

Spot on.

by Wrong John | 12th Sep 19, 3:19pm 1568258358

And Trump's busily calling out The Fed telling them to get negative IR's asap so the govt can borrow more money at no cost. Is this for real or will I wake up shortly?

by RickStrauss | 13th Sep 19, 9:26am 1568323566

Trump is emblematic of the current malady. Living large not off the fruits off his labour but off massive debt to others. Speculation rather than productivity. Posturing and preening rather than innovation and industry.

by Boatman | 12th Sep 19, 3:56pm 1568260567

I am furious about low interest rates for savers , but there is another angle to this ........... Government tax revenue from Interest witholding tax must be way down on what is was in 2007/8 .

Its a real problem for Boomers and people entering the last decade of their working lives , who have cobbled together meagre savings , we have lived through the post war period , the unpleasant Rogernomics , sky high taxes , sky high inflation and massive stock market and currency crashes , over 20% mortgage rates ............. we had it way harder then these kids nowadays

by youngdumbandbroke | 12th Sep 19, 4:02pm 1568260940

Yea so tough. Lived in times where no one worked weekends, a family of four could own a house, car and afford holidays or a bach on a sole average wage, unlimited resource and environmental plunder, low crime, cheap property... i feel sorry for you boomers had a rough ride

by Nzdan | 12th Sep 19, 4:28pm 1568262531

What's the "post war period"? Is that the period of full employment and high levels of economic growth directly after the war?

by RickStrauss | 13th Sep 19, 9:28am 1568323706

Post ware period...when the older generations and their governments put massive effort into increasing the housing supply and passed affordable housing and education on to Boomers. Pity that attitude wasn't replicated by the Boomers.

by northman46 | 12th Sep 19, 5:08pm 1568264909

And I suppose it's kids nowadays fault, for our current situation, too?

https://i.kym-cdn.com/photos/images/newsfeed/000/645/713/888.jpg

by blobbles | 12th Sep 19, 5:04pm 1568264652

What a silly statement. Yes boomers lived through all of that, but SO DID YOUNG PEOPLE as their children. And remember - boomers voted for it all, their children didn't get a say.

But now look at the world the boomers children have compared to the one in which the boomers lived in at the same age. Barely any of them can own a house. Their wages are stagnating compared to costs. Many are working multiple jobs just to pay RENT. They have come out of higher education with massive bills. They have to try and fix the massive pollution the boomers instituted as a result of profligate consumerism and an absent eye on the environment.

Hence you see the birth rate falling off a cliff. Nobody wants to have kids because ostensibly the boomers are still in charge and voting for the same things that they rant on about being "wrong with the world". I aren't sure how they keep the cognitive dissonance at bay. "So many problems with the world" which they voted for and continue to vote for. Along with "Young people have it so good". It simply cannot be both.

by Nzdan | 12th Sep 19, 5:55pm 1568267737

And the old flurry of comments on Facebook whenever a 1970’s worksite photo is shared:

“In my day we didn’t have all this health and safety red tape nonsense, gosh how brave we were”.

Somebody brought the regs in and it sure as hell wasn’t the millennials.

by imhenry | 13th Sep 19, 7:07am 1568315272

Yes its a tough life. Harden up

by Nzdan | 12th Sep 19, 6:47pm 1568270820

I tell you what, you pen yourself an angry letter to the following individuals:
* Former CEO of ANZ David "boomer" Hisco
* ANZ Chairman John "boomer" Key
* Westpac NZ CEO David "boomer" McLean
* BNZ Chairman Doug "boomer" McKay
* ASB Chairman Gavin "boomer" Walker

I think Adrian Orr is 1 year shy of being considered a Boomer but send one his way too if you like?

by youngdumbandbroke | 12th Sep 19, 7:07pm 1568272028

If our current problems could be blamed on one generation, it's the boomers

by imhenry | 13th Sep 19, 7:08am 1568315338

Your name says it all

by RickStrauss | 13th Sep 19, 9:26am 1568323613

Don't forget living in a hole in the road, and walking eight miles to school and back each day - uphill both ways!

by Boatman | 12th Sep 19, 8:07pm 1568275675

Sorry David Chaston for having caused a stir .......... there is an unbelievably strong anti-Boomer sentiment out there .......... reminds me of the song by Mike and the Mechanics which starts ............. "Every Generation blames the one before "

by Nzdan | 12th Sep 19, 8:22pm 1568276544

Ironically a song written by Baby Boomers.

But yes there does appear to be a strong anti-Boomer sentiment out there, I'm not sure where it comes from though........

by RickStrauss | 13th Sep 19, 9:29am 1568323787

Backlash against the smashed avocado brigaders, for one. I reckon the younger got generations got thoroughly sick of that unrealistic bullpaki.

by youngdumbandbroke | 12th Sep 19, 8:26pm 1568276801

Boomers love dishing it out but can't take it back. Most are just bitter for squandering the opportunities they had at their disposal

by imhenry | 13th Sep 19, 7:10am 1568315445

Your day is yet to come toughen up

by youngdumbandbroke | 13th Sep 19, 8:25am 1568319933

And youve had yours by the sounds? What was it like to have it all on a silver platter?

by bob cotton | 13th Sep 19, 9:10am 1568322608

What rubbish. Silver platter? As a kid in the 60s I had nothing! Discipline and resilience were the tools we used to get through. Elements which are sadly lacking today.

by RickStrauss | 13th Sep 19, 9:31am 1568323903

That discipline and resilience surely makes the prospect of low interest rates on savings not too much a worry. Resilience and discipline are what it takes now.

Back in my day pensioners weren't swanning off on overseas trips each year, drinking flat whites at cafes all the time, or wasting their money on Sky telly. They lived in units, not McMansions.

by Yvonnelee | 13th Sep 19, 11:19am 1568330383

Hahaha!
You are so funny youngdumbandbroke. We all make our own choices with what has been dished out to us from the generation we were born in.

Most boomers left school at 15 to work. Some got themselves into an apprentiship a few went to university, most laboured. NZ in the 50's was a very simple place, we didn't have much in the way of goods coming into the country, I remember eating oranges only at Christmas, our parents knitted and sewed our clothes which we passed around when they were outgrown. Holidays meant staying with the rellies for a week for entertainment there were the movies once a week.

But...there are also those who make good choices:

https://www.stuff.co.nz/life-style/homed/latest/114704069/on-the-ladder…

https://www.stuff.co.nz/life-style/homed/houses/95743471/from-teen-drop…

by Ngrrk | 13th Sep 19, 4:57pm 1568350645

*links to Stuff articles*. You're not helping your cause. I'm sorry, if you don't believe it was easier to have a 'life' (house, stable employment etc) in the 50's, 60's and 70's in NZ then you are delusional.

by Mark L | 12th Sep 19, 8:47pm 1568278034

How much money is put into Kiwibonds?
I wonder why they even exist as I suspect that the Govt doesn't want money to be deposited into them.
If it did they would have a 21st century way of buying in, ( like online), instead of the archaic 'fill out the form and send us a cheque'! - Who has a cheque book!!!!

by powerdownkiwi | 13th Sep 19, 9:34am 1568324085

It's not money, it's digital proxy - and by my reckoning, there isn't enough planet left to underwrite the collection of proxies.

So we live in disinteresting times. That graph is a 'tank', if ever I saw one. Has this happened before?

by Sibrit | 13th Sep 19, 4:30pm 1568349029

These low rates are great for borrowers but really suck for people like me trying to save up the deposit on a house.

If I was saving for retirement that's a different story, as I can accept a lot more risk, but when you're looking to buy in 1~2 years, you really can't.

Most of my funds are in a 3% PIE TD that I nabbed on the day of the OCR announcement before my bank had had a chance to lower their rates - which I'm really glad about as now they only offer 2.6% - but like many fiscally responsible people, I have 3 months income in cash savings as my emergency fund which is now only getting me a paltry 1.4% (was 1.9% before the cut). That's below inflation.

I don't think there is anything more I can do at this time, right?

by Carlos67 | 16th Sep 19, 6:54am 1568573669

Got a few TD's coming out late this year and early next. Not to worried really, if you have a mortgage free home your sweet when you finally decide to retire. If rates try and go negative, just pull your money in cash. I think that $1M is only about 10Kg of 100 dollar notes. If the banks what to try and pull that stunt just withdraw all your money.