The second move of term deposit rates in 2020 has happened and it is also a rise.
First, BNZ launched a 2.88% one year rate until February 7, which is a meaningful rise.
Now Kiwibank has responded with a 2.85% rate for 200 days (about 7 months). And they have raised their own one year offer to 2.70%,
These two Kiwibank increases involve increases of +10 bps respectively.
Both rises are important because the focus on the term sweet spot Kiwi depositors will consider.
Kiwibank's one year rate can come with interim interest (much like the BNZ offer).
But Kiwibank's 200 day offer is only available with interest at maturity. For a shortish term like 200 days, this is not a major disincentive.
And this rate comes with an additional incentive as well: "Get a Term Deposit at 2.85% p.a. for 200 Days with a minimum investment of $10,000 between 20 January – 9 February 2020 and you're automatically in the draw to win one of three trips to Fiji." It is an incentive that backs up Kiwibank's current mortgage promotion.
The term deposit promotion only runs to February 9 but the 200 day rate may run longer. This is a rate offer that has no end date, just "subject to change".
And their is more; the Kiwibank 200 day 2.85% rate is also available as a PIE, and for investors who are on the maximum marginal tax rate, that boosts the effective/equivalent rate to over 3%.
Having an '8' in the rate is thought to be attractive to Chinese investors at this time around Spring Festival / Chinese New Year. '8' is the luckiest number in Chinese culture because 八 sounds like 發 (fa), which means “wealth”, “fortune”, and “prosper” in Chinese. Multiples of eight are even better.
Apart from an offer from the specialist Indian branch of the Bank of Baroda, or Kookmin Bank's $100,000 four and five year terms, BNZ's 2.88% is the highest rate currently on offer from any bank for any term.
It comes at a time when one year wholesale swap rates have risen +4 bps in the past week, and have risen +30 bps in the past three months. Back at the low point in mid-October, BNZ had its one year term deposit offer at 2.60%, when it was first reduced to this level.
The average bank one year term deposit rate is currently 2.58%, and all-time record low and still trending down, although these new Kiwibank and BNZ rates will take it up marginally to an average of 2.62%.
Analysts are expecting the December 2019 CPI level to show inflation rising. This data will be released at 10:45am on Friday. Kiwibank economists expect annual inflation to come in at 1.7%, ASB and Westpac economists expect 1.8%, and ANZ economists forecast 1.9%. BNZ economists have picked 1.8%.
If it does come in at +1.8%, for taxpayers on a 33% marginal tax rate, the new one year rates will deliver a tiny +0.13% tax-paid, real return. Taxpayers on a 30% marginal rate, the same real return would rise to +0.22%. For those on the 17.5% marginal rate, the real return would be +0.58% pa.
The 'specials' by these tow banks turn the tide of ever lower rates. It is a move than many may not have expected in early 2020.
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.
That the Government now offers Kiwi Bonds at a -80 bps discount to inflation is not a great signal to those who need low-risk interest income.
We should also note as background that ANZ in Australia has cut their TD rates today, taking their 'best' rate down to 1.15% for a five year term commitment (interest paid quarterly). Who's the 'lucky country' now?
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.
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|
^ = 200 days, * = 15 months