Lower deposit rates with still no end in sight

Personal Finance

This week BNZ, Kiwibank and Rabobank have cut term deposit rates and a 3% offer is only available from SBS Bank now. We update where term deposit rates are being pitched in this ever-declining space

17th Oct 19, 12:37pm by David Chaston

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

They include BNZ, Kiwibank, and now Rabobank.

Over the past month, term deposit rates have relentlessly drifted lower.

There may be more to come.

These rates are still declining steadily since we last reviewed them on September 12. 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.

In fact, the pressure on banks to match the still-falling fixed mortgage rate offers is translating into pressure for them to cut term deposit rates.

We are now in unprecedented territory.

Both a major and a challenger bank are offering 2.50% for a one year term. For savers with a 30% marginal tax rate (for incomes of $48,000 and higher) this chops the tax-paid return to just 1.75% and that is only 25 bps above the level of CPI inflation making the real return a minuscule 0.25%.

Fortunately, most banks are still above the 2.50% benchmark, but if bank offer rates ever fall to 2.15%, then the real return will have evaporated. Even so at current levels, there is not much in it.

Most banks offer higher rates for shorter terms, an historical oddity because the 'normal' is higher rates for longer terms where there is a premium offered for term. But these are not normal times, even if it looks like this inverted circumstance may be with us for the foreseeable future.

A 3% return is still on offer by an investment grade rated bank. SBS Bank offers it for three years. But no other national retail bank does.

Among other offers, those from Chinese bank ICBC and by Heartland Bank stand out, with 2.90% for six months at the former, and 2.90% for 15 months by Heartland.

But it is hard to see any of these higher rates hanging around very long.

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 still available. As expected, Treasury cut it to this level soon after the last 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 -50 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. (Update: This article has been updated to include the 9 month TD reduction by SBS Bank.)

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-	2.35	2.80	2.80	2.70	2.60	2.60	2.60
	AA-	2.35	2.70	2.80	2.70	2.60	2.60	2.60
	AA-	2.25	2.70	2.65	2.60	2.50	2.50	2.50
Kiwibank	A	2.35	2.75	2.70	2.70		2.60	2.60
	AA-	2.40	2.80	2.75	2.70	2.70	2.70	2.70
Other banks
Co-operative Bank	BBB	2.25	2.70	2.60	2.50	2.50	2.50	2.50
	BBB	2.40	2.80	2.80	2.80	2.90*	2.80	2.80
HSBC Premier	AA-	1.90	2.20	2.20	2.05		2.05	2.05
ICBC	A	2.45	2.90	2.80	2.80	2.80	2.80	2.80
	A	2.15	2.80	2.75	2.65	2.60	2.60	2.80
	BBB	2.40	2.80	2.80	2.75	2.75	2.75	3.00
	A-	2.35	2.70	2.70	2.70	2.70	2.70	2.70

* This is a 15 month rate.

Term deposit rates

Select chart tabs

Source: interest.co.nz

For easy reference, here are these same rates back on September 12, 2019.

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

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21 Comments

by Uninterested | 17th Oct 19, 12:52pm 1571269945

If you factor in the risk of a bank going bust and the associated OBR risk, kiwibonds are looking better and better!

by HeavyG | 17th Oct 19, 1:02pm 1571270530

Kiwi bonds at 1% at 1, 2 and 4 years? Yeah... Nah.

https://debtmanagement.treasury.govt.nz/individual-investors/kiwi-bonds…

by sharetrader | 17th Oct 19, 1:38pm 1571272709

still higher than aussie
they are down to 1.4% for six months
https://www.finder.com.au/term-deposits

by bw | 17th Oct 19, 2:00pm 1571274030

"**capital decumulation.... will be accelerating."
Sure will. What else did we expect when we embarked on a never-ending, lunatic policy of lowering interest rates to 'stimulate' the economy(s)?
Debt accumulation, that's what! And guess what? It's worked.
Now the Big Trick is to get Consumer Spending going by debt-soaked households who have a decreasing capital balance sheet.
What will they do? What would you do? "Spend !" is unlikely to be the answer....and 'borrow some more' is probably the only option. ergo: The cost of Debt is going to continue to fall as there is now no other painless choice left.
(**NB: What happens when all the household capital has reduced to $zero? "Sell whatever you have" that's what. So those who can see what's coming should have been doing this for some time. It's not too late, but soon, it will be)

by HeavyG | 17th Oct 19, 3:04pm 1571277899

Household net worth is increasing (see https://www.stats.govt.nz/information-releases/household-net-worth-stat…).

The capital decumulation DC is talking about is rich old people having to spend to pay for their retirement, health care, cruises etc as the returns on their TDs are now too low to sustain their lifestyle (i.e. they are eating their capital). How you turned that into all NZ households are getting poorer I don't know but I am sure you will get lots of up votes from the DGM club (a video from the DGM Clubs last meeting https://www.youtube.com/watch?v=V7NlFWh7Sz8).

The debt soaked people (more likely FHBs) are in a better position than ever as interest rates go to historic lows. As interest rates are low less is needed to service debt and more can be used to either pay off principal or spend on other items.

Those in the firing line are those with capital assets who had hoped to get a large interest return for lending their capital (e.g. cashed up pensioners). DC notes that TDs for short term are higher than long term, this is easily explained as banks don't want borrowers to lock in long term high rates as the banks will be able to borrow that money for an even lower rate when those short term TDs expire. Same thing is happening as the long term mortgage rates get lower and lower even when compared to shorter term mortgage rates.

This all means everyone is picking TDs and mortgage rates to keep going down, down, down.... and stay there for a long time.

by VeryInterested | 17th Oct 19, 3:08pm 1571278087

I know plenty of people in their late 40’s and 50’s who are still carrying huge mortgages which will only get repaid if they sell the property. All in the name of having the big $2m to $4m house.

by bw | 17th Oct 19, 3:19pm 1571278754

Household Net Worth is intangible - it can and does vary according to the revaluation of any assets involved.
Capital, in terms of this article, is indeed ' rich, old people spending for their retirement' It is also relatively poor, young people spending to supplement their everyday cost of living. It is relatively fixed ( past income, saved, in this case). As is written - it is Decumulating.
You have a different opinion to me. So be it. But if I'm wrong, it won't matter. You'll be fine; I'll be fine!
But if you're wrong, it still won't affect me, but will it you and all those others in your situation? Perhaps not. I recall you are in the 30/30/30 situation ( which is fine) but most ... of the indebted are not. Revalue their "Net Worth' at ( pick a figure! 10% below where 'things' are now? 25%? 50%! It happens..and did as recently as 2008) and they are in trouble.

by HeavyG | 17th Oct 19, 3:17pm 1571278668

Real assets people own are tangible. You can see them, touch them and value them. Even intangible assets have real worth. Just because something can be revalued does not mean it has no worth? What point are you making?

by bw | 17th Oct 19, 3:25pm 1571279126

So if today, you have $10,000,000 of mortgage debt against property valued today at $12,000,000 ( Net Worth $2,000,000) and tomorrow the property market tanks and your property is 'worth ' ( good luck selling it into tomorrow's market! Everything is only 'worth' what someone else is prepared to pay) $6,000,000 - you reckon being able to touch it is going to save you?! Good luck with that. Net Worth is intangible in terms of the uncertainty of its future value. That, in a very real way, is what lower interest rates is trying to tell you - that the future value of your Intangibles is going to fall. Believe it or not. That's up to you.

by HeavyG | 17th Oct 19, 3:42pm 1571280132

I know that is your dream/desire/foretelling that housing will crash but how you extrapolated that as the message conveyed in the article is beyond me. Maybe next time just say "the property market is crashing as I foretold" and leave it at that because the above analysis looks like babble.

E.g. you said [I couldn't bring myself to repeat what you said as it was so wrong. It's like "apple + giraffe = property crash"; or "328 + apple pie = property crash"; or "A lion was seen at the LA Zoo flicking a fly from it's rump..... = property crash")].

by J.C. | 17th Oct 19, 3:27pm 1571279239

How you turned that into all NZ households are getting poorer I don't know but I am sure you will get lots of up votes from the DGM club (a video from the DGM Clubs last meeting

The DGM 'other' construct is mindless. I'm not really sure how contemplating outcomes outside the "she'll be right" mindset to economics has to be turned into Lord of the Flies.

by Good Samaritian | 17th Oct 19, 3:40pm 1571280037

Your living an illusion.

And obviously not raising a family under the current costs. $3,600 net in costs, just for the school bus. Takes 30-45 minutes plus each way, if they miss it.

Weekly expenses for a family of 5:
- Rental $500 If we didn't own
- Power $ 75
- Food $350
- Phone $ 30
- Petrol $100
- Other $ 50
- Bus $ 70 Subtotal say $1,200 per week.

This doesn't take account of school, health or clothing costs, bank fees, etc, which is probably another $100 per week. While we are coping; because I know how to budget, rents or mortgages can be considerably more.

Back when I went to school, the buses were free, education was free, 6 cents for a bottle of milk, and accommodation costs relative to income were far less. I actually had a paper run and biked to school, and collected bottles and cans for refund money. All this has disappeared, because the state can no longer afford to keep the children safe, so parents clog the roads dropping there kids off.

Its all happened because of the flawed idealogy of globalism, where multinational companies dictate governments administration and concentrate wealth; who waste money on 150 foot launches, multi million baches they use three weeks of the year to inflate their egos while structuring themselves so they don't pay taxes.

Welcome to the masses world HeavyG.

by HeavyG | 17th Oct 19, 3:48pm 1571280505

Your anecdotal story with its homely charm and nana and popa down to earthedness has convinced me... Ignore the stats and the evidence, you had me at "illusion".

by Miggle | 19th Oct 19, 4:05am 1571411125

I recently was cleaning up some filing cabinets from my poor departed parents. Late 60s to early 80s. Lots of invoices etc. Kept the more interesting stuff. Anyway did some inflation adjustments.
So it seems that unless the RBNZ inflation calculator is a crock of old horse whatsit then there has been a great change in price structure in NZ
So...
Power, Wof, mechanics, campsite charges, food items etc up 100%
Interesting that things like Welding rods and gas etc up 200%
Petrol up 60%
Insurance up a massive 400%

But things we don't purchase much like..
Gib board... and large machinery items forklifts, tractors and new cars motorcycles are a lot cheaper now, ie half the price now than when brought 1960- 82

by Good Samaritian | 17th Oct 19, 3:44pm 1571280254

Your living an illusion.

And obviously not raising a family under the current costs. $3,600 net in costs, just for the school bus. Takes 30-45 minutes plus each way, if they miss it.

Weekly expenses for a family of 5:
- Rental $500 If we didn't own
- Power $ 75
- Food $350
- Phone $ 30
- Petrol $100
- Other $ 50
- Bus $ 70 Subtotal say $1,200 per week.

Welcome to the masses world HeavyG.

by Mr T | 17th Oct 19, 3:50pm 1571280607

"DC notes that TDs for short term are higher than long term, this is easily explained as banks don't want borrowers to lock in long term high rates as the banks will be able to borrow that money for an even lower rate when those short term TDs expire." We've been watching higher short term TD rate offers (versus lower long term rates) for quite some time now - banks must think we're stupid to buy into such a ploy - smart peeps took long term TD's (5 years at 3.85%) a few months ago - we're now sitting (kinda) pretty.

by Trapped Millennial | 17th Oct 19, 3:44pm 1571280274

David,

praise to your staff.

Over the past 3-6 months Interest.co.nz has been a lot more creative with your pictures assigned for each article, like the one above is absolutely gold. Great to see the little extras being done well!

by a watchman | 17th Oct 19, 4:36pm 1571283418

How can you spend more when investment interest rates continue to drop? Appears to me that this is a cycle to depression, both financially and emotionally.

Remember the risk takers 12 years ago? What happened then!

No, I will not spend more just to keep Mr Orr happy.

by loveyourwork | 17th Oct 19, 9:45pm 1571301948

Might be a dumb question... Looking at the historical charts? what was the drivers behind TD rates significant drop end of 2014?

by Sibrit | 18th Oct 19, 12:18pm 1571354331

I think these super low TD rates are really only affecting FHB's expecting to buy their first home within a couple of years, and retirees supplementing their Super for the next 20+ years. These are the only groups that should really be that risk adverse that TD's are their only option for investment. Everyone else should be taking on more risk of differing levels via index funds, actively managed funds, local and oversea stock markets, residential and commercial property, hobby businesses, etc.

by Carlos67 | 19th Oct 19, 9:45am 1571431539

Just rolled over one of my TD's at ASB to the 9 month special at 2.8%. Certainly has come down and now like $50 a week worse off, still it really depends on your week to week living expenses as to what difference it makes.