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Term deposit rates dive deep into unexplored territory, at record lows with the strong prospect of sinking further to very dim depths. Savers are realising you can't fight the RBNZ and its LSAP bazooka

Term deposit rates dive deep into unexplored territory, at record lows with the strong prospect of sinking further to very dim depths. Savers are realising you can't fight the RBNZ and its LSAP bazooka

[ Further updated with BNZ's term deposit rate cuts. ]

The May Monetary Policy Statement from the RBNZ explicitly called for lower mortgage rates and took actions to lower wholesale rates.

Together, these have been effective and even lower rates are in sight.

But it has compounded the pain for savers.

Just a bit over a week ago we reported as these rates had fallen over a cliff in 2020.

Now it seems the hole is even deeper and the RBNZ seems to be digging to make it deeper still.

Benchmark average one year rates are now averaging at 2.24% with two main banks now as low as 2.15%. On an after tax basis, these return 1.86% (1.78%) pa and well below inflation which was recorded as 2.5% as at March.

(Our May 5 report pegged the average at 2.34% and the lowest at 2.30%.)

The equally important six month TD benchmark is now averaging the same low per annum rates.

That means term deposit savers are really boxed in.

But there is still variation. For example, BNZ is still offering 2.40% pa for a one year rate. If you are an ANZ saver you are only being offered 2.10%. If you have a $10,000 term deposit, the difference is just +$30 gross per year, but for a $100,000 term deposit it is +$300 per year and while not a huge premium, you are better having that $300 than your bank. Every little bit helps when rates are so low.

But you will need to be quick. It seems very unlikely that BNZ (for example) will last long at 2.40%. Certainly there is zero suggestion that any bank will raise term deposit offers any time soon..

Staying with investment grade rated banks, there are options to move outside the main banks. Rabobank (rated A) still offers 2.50%, and for the adventurous, ICBC (also rated A) is still offering 2.65%. For an ANZ saver (rated AA- and offering 2.10%), the annual difference is +$550 on a $100,000 TD and definitely worth considering. After all, in this dark, deep hole any 'light' is worth considering - especially when you realise it won't last much longer.

The latest headline rate offers are in this table and the markings are for changes since May 5. (Updated with Heartland Bank changes announced today.)

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- 1.65 2.15 2.15 2.10 2.15 2.20 2.25
ASB AA- 1.70 2.30 2.25 2.25 2.25 2.25 2.25
 [ updated ] AA- 1.60 2.25 2.30 2.30 2.35 2.35 2.35
Kiwibank A 1.80 2.30 2.30 2.30   2.30 2.30
Westpac AA- 1.60 2.10 2.15 2.20 2.20 2.20 2.20
Other banks                
Co-operative Bank BBB 1.45 2.05 2.10 2.15 2.30 2.40 2.45
Heartland Bank [ updated] BBB 2.05 2.40 2.55 2.50 2.50 2.50 2.50
HSBC Premier AA- 1.20 1.45 1.45 1.45   1.60 1.60
ICBC A 2.25 2.80 2.65 2.65 2.65 2.65 2.65
Rabobank A 2.30 2.55 2.50 2.50 2.50 2.50 2.50
SBS Bank BBB 1.80 2.30 2.40 2.40 2.40 2.40 2.40
A- 1.80 2.30 2.35 2.40 2.45 2.50 2.40

Term deposit rates

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Imagine retiring about now...

Buy a rental....tenant might not pay rent, could be an oversupply of rentals, valuation might crash.
Buy some shares....dividends being cut. Prices might crash futher.
Buy some gold...will we have inflation or deflation?
Buy some term deposits...real return could be negative?

Strange times.

Everything is screwed due to the ponzi scheme aim for unlimited growth at all costs.
I wonder how safe sales are going many will just withdraw now as whats the point of a bank except to loan loan loan but save what would be the point.
I have most of my assets still in AUD/USD banks so at least I am making on the exchange rate as we destroy our dollar.

Yes I'm holding quite a bit of foreign currency as well and some gold...hard to know what to think right now.

From personal experience, I can say it is quite possible to live on the married couples' NZ Super, if you have no mortgage and debts.

Agreed - NZ Super covers the basics of life provided one has a mortgage and no debts. Mates in drinking school appreciate that we are fortunate and are feeling fairly secure albeit some have lost a little on investments and reduced discretionary spending income but that is not life changing.
I don't envy the stress for those with young families and uncertainty over job and/or income security.
Important to note that you mention home ownership- this does give security in retirement and is part of the reason I see it sad that young FHB are currently facing home affordability issues .

And those same FHBs will face issues retiring in due course when there is no government pension provided. I really wish we would just blatantly copy the Australian Super scheme. The longer we take to do something proactive in this direction the bigger issues we will face in the future.

Good to see you concerned about retirees.

Personally, haven't been rolling over the TDs, accessible KiwiSaver funds in cash; just sitting, watching, and waiting.
Extent of likely impacts currently uncertain; but lots likely to happen in three to six months and will look at opportunities then or as they arise.
Nothing really to lose just sitting in neutral gear.

Ditto. All to chaotic at the moment so moved to the sidelines.

Buy a rental, etc

Start buying Bitcoin and watch people starting to avoid you or looking at you as if you're completely bonkers.

Yeah Bitcoin isn't a good idea considering most Bitcoin users are from China and their Government is about to introduce and most likely enforce their crypto currency. Here's some more details on that. Wired article: Inside China's mission to create an all-powerful cryptocurrency. "Bitcoin miners face severe regulation in China. Instead, the country is creating its own digital currency – and it could be adopted at a fast rate".

These rates are going lower, of course.
And that $300 you mention? It's not going to get spent into the economy, as by implication, those that have saved past income earned in bank deposits do have the money to spend.
But they won't, as the rate of return falls.
And as spending falls, rates will be cut again.
One day, someone will realise how self-defeating manipulation of monetary policy is!
The RBNZ should be the Lender of LAST resort to the commercial banks - end of story. Determining the cost of capital for productive businesses shouldn't be part of their brief. It's supposed to be the commercial banks that determine lending risk and the cost of capital, and exactly why Government policy settings should direct where those banks make that lending fall.
Economic stewardship of the economy is the domain of Government. They are tasked with fiscally setting the agenda for the immediate future. Get that wrong? Toss them out at the next election!

A chart that looks at the spreads between TD rates and lending rates would be interesting.


Like this?

  1yr fixed
1yr term
ANZ 2.99 2.10 0.89
ASB 3.05 2.25 0.80
BNZ 3.09 2.40 0.69
Kiwibank 2.99 2.30 0.69
Westpac 3.05 2.15 0.90

I don't think this tells you much as it just isn't how banks fund their mortgage books. It is a very superficial comparison.

interest rates close to inflation rate excluding the tax you would pay on the interest = negative return/ zero incentive

Kiwibank notice saver seems best value in NZ at moment due to 90days rather than 12months

Free diving is risky as all hell, there's a very real chance of not coming up alive.

We'll see if interest rates are the same I guess.

Its no doubt, one of the least favorable places to be is holding money in the bank. Mind you vulture funds are all about timing. Popcorn...

It's almost as though powerful forces are pushing us to redefine our wealth in terms of what we can create, or produce and not through abstract symbols over which we have less and less control.
All I know is that the fiscally responsible taxpayer is taken out back and clubbed like a baby seal through taxes, then inflation, government borrowing, taxpayer backed loans, and with no incentive to save safely in any real financial institution of note. They're taking the p*ss.
And while they're at it they're going to rewrite history by trying to prove that wealth is created in the printing press, not off the backs of millions of disciplined, hard working people. Good luck with that. Hope Orr grows another chin so he can stroke all three of them when trying to figure out how to get out of this monetary conundrum.

They will acknowledge the wealth of the hard-working people by taxing estates and inheritances, but that's it.

I reckon you are probably right. And gift duties too.

My TD's are out in July and August so still getting a good rate. Timing is about right as plan to buy a house when the property market tanks by September or October. Free diving is risky but the property market is going to be like jumping out of a plane without a parachute.

Does anyone have recommendations for a good safe to purchase? Not going to leave my money in the bank at these paltry returns.

Why don't you buy kiwibonds? At least you get some type of return, be it tiny, with less risk than the bank.

Buy a classic car, at least you will have the pleasure of driving it.

Albeit filliped by the fantastic bond/treasuries rally since 1 April, this is very depressing for prudent savers. And once rates get to zero the bond rally probably turns to rout.

There's nowhere safe with a return.

Everywhere with a return has such toxic risk now, I'm not interested.

What a time to be alive.

People are happy to pay too much for Bitcoin - not because its valuation makes sense, the key is limited supply and the fact the media pumped the shite out of it as THE way to get rich quick.

Sorry, didn't mean to say "Bitcoin", I meant to type "NZ Real Estate". My bad.

"Savers are realising you can't fight the RBNZ and its LSAP bazooka". Yes but you can move your money abroad to a country that will actually protect your savings if the bank fails. Here there is no such protection!

I watched my father avoid two collapses in his retirement. He retired in early 1987, put it all in the bank & then the share market crashed. Even I can remember it was tough for 3-4 years. He didn't lose a penny. Then in 2008, when he still had most of his money in the bank, the GFC struck & a lot of our friends & family got hit by the wave of finance companies collapses (chasing high interest rates). Once again, he never lost a penny. He never made a fortune, but he worked hard, lived a good life until he was 92 & never went without anything. He was always very thankful for what he had, so I suppose he didn't need much to achieve that, but there was almost a million bucks to share out after he passed. Not bad for a skinny kid from Nelson who grew up during the depression. There's a lesson in here somewhere.

Perhaps the lesson is you can retire securely when your money was on term deposits at the big banks, and you could rely on average interest rates on deposits of over 6%.

That's never going to happen through my retirement, TD rates will all be sub 2% soon, and fully taxed - the tax on fixed income is the most vicious of all investment asset classes - so retirees now have to work much longer (which is problematic post-covid because there are a lot less jobs) and/or simply use up all their savings corpus and hope they don't outlive their savings (which many will, so we now have a new growing class of people: retirees in poverty).

Heaven help those who took the advice of the financial planning industry and didn't move to own their own homes. Being retired living in a rental is both insecure - you can be out on the street anytime - and it's poverty, basically; those with their freehold houses will start taking up reverse mortgages (which I have no problem with, and at least they can access their equity for income).

Only about one person in one hundred is going to have to put their minds to inheritance planning. Sorry kids.

We will end up digging ourselves into a massive hole yet .

The hole started with a man and a shovel , now its 26 Hitachi diggers and 50 dump trucks to take the soil away

Days to the General Election: 24
See Party Policies here. Party Lists here.