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ANZ takes term deposit rate offers down to levels never seen before, with no offers above 1%. Is this the death knell for term deposits?

27th Oct 20, 6:55pm by David Chaston

Photo by Rosario Nuñez on Unsplash

It has happened. One bank has lowered its term deposit rate card so that no offers are above 1.00%.

ANZ has cut most of its rates, with their 'highest' now just 0.90% - and you need to commit to an eighteen month term to get that.

Recall, ANZ was also the first to cut below 2% in late May.

This latest push lower makes it clear there is no downside for banks. Depositors will continue to hold their balances at banks, shifting them to at-call accounts that actually pay zero interest.

The banks themselves know that they can get all the funds they need from the RBNZ in their upcoming Funding for Lending program at super discounted rates.

Term deposit interest is an income stream that has dried up.

With today's ANZ move, almost all other banks will soon follow.

But if you do want to be paid for your 'investment' you will need to be quick and you will need to look to the challenger banks while you can.

Rabobank, Heartland and the Cooperative Bank will be the first to check.

Not in the table below are four and five year rates and every bank except ANZ still have offers of 1% or higher.

On easy way to work out how much extra you can earn by switching is to use our full function deposit calculator. That will not only give you an after-tax result, you can tweak it for the added benefits of Term PIEs as well. It is better you have that extra interest than the bank.

The latest headline rate offers are in this table and the markings are for changes this week so far.

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-	0.45	0.55	0.85	0.85	0.90	0.90	0.90
	AA-	0.55	0.95	0.90	0.90	0.90	0.90	1.05
	AA-	0.65	0.95	0.90	0.90	0.90	0.90	1.00
Kiwibank	A	0.65	1.05	1.00	1.00		1.00	1.00
	AA-	0.55	0.90	0.95	0.90	0.90	0.95	0.95
Other banks
Co-operative Bank	BBB	0.45	0.95	1.00	1.05	1.00	1.25	1.35
	BBB	0.50	1.10	1.05	1.05	1.05	1.30	1.05
HSBC Premier	AA-	0.55	0.80	0.80	0.80		0.80	0.80
ICBC	A	0.65	1.00	1.00	1.00	1.00	1.00	1.00
	A	0.50	1.25	1.25	1.25	1.25	1.25	1.30
	BBB	0.60	1.05	1.05	1.05	1.05	1.05	1.05
	A-	0.60	1.05	1.05	1.05	1.05	1.05	1.05

Term deposit rates

Select chart tabs

Source: interest.co.nz

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63 Comments

by Justa comment | 27th Oct 20, 7:06pm 1603778810

I have to laugh at these banks advertising 5 year term deposits at 1%. I bet anyone here a cold beer that out of all the banks they have had no term deposits for 5 years at 1%. Why would anyone do a 5 yr for 1% (now 0.9 ANZ)
ho ho ho...

by OreoContrarian | 27th Oct 20, 7:14pm 1603779286

Get it out of the bank while you still can I say!
Restrictions on withdrawals will be next!

by Audaxes | 27th Oct 20, 7:39pm 1603780771

Deposits created by bank lending (borrower and bank exchanging IOU's) can only be retired by the borrower paying down the loan commitment. Issuing bank checks to purchase an asset causes the vendor to clear the funds back to the banking system. Hence the term "sticky" retail deposits.

by J.C. | 27th Oct 20, 7:15pm 1603779313

Well the Japanese have been accustomed to this for well over 20 years and they still hold more cash that the average NZ h'hold.

shorturl.at/iwCQ1

by OreoContrarian | 27th Oct 20, 7:21pm 1603779688

Japan appears to be not third world like NZ when it comes to deposit holder guarantees via its Deposit Insurance Corporation of Japan https://www.dic.go.jp/english/
But is not blanket coverage but better than NZ and its OBR regime.

by imhenry | 28th Oct 20, 7:16am 1603822600

Reserve Bank should scrap the OBR. The people just would not stand for it Riots in the street material

by imhenry | 28th Oct 20, 7:11am 1603822291

Cash is King

by npc | 28th Oct 20, 9:21am 1603830084

Don't worry. They're coming for your cash.

by bw | 27th Oct 20, 7:18pm 1603779536

Quite right. And whatever happened to the RBNZ wanting the banks to lengthen their maturity profiles? Oh, that's right! The RBNZ will look after them, as all their retail depositors will have their funds At-Call and the only Term Lender, in any guise, will be the Central Bank. Now there's a Commercial Banking sector operating at its very best!
Hang on a minute?
What Commercial Banking Sector?
Nationalisation of the banking sector is upon us......

by OreoContrarian | 27th Oct 20, 7:17pm 1603779460

NZ is now a state run capitalist economy!

by bw | 27th Oct 20, 7:20pm 1603779601

And a very badly run one to boot....

by Audaxes | 27th Oct 20, 7:32pm 1603780349

New Zealand-incorporated registered banks are also subject to a minimum core funding ratio (CFR). The basic notion underlying the CFR is a comparison between an estimate of the funding of the bank that is stable and can be assumed to stay in place for at least one year (‘core funding'), and the core lending business of the bank that needs to be funded on a continuing basis. Core funding is defined as retail deposits plus wholesale funding with maturity of more than one year.

by itsme | 28th Oct 20, 9:43am 1603831405

Why are house and rent prices not included in the OCR?

by Pragmatist | 28th Oct 20, 10:51am 1603835473

If you mean the CPI, they are, both the cost of building a new house, and the cost of rent are in the CPI. Whether they are weighted appropriately or not is another question.
Land prices are not, nor is "used" housing, or used anything else. And then there are all those hedonic adjustment, which mean the CPI doesn't track true costs all that well either.

by Audaxes | 27th Oct 20, 8:06pm 1603782375

The banks themselves know that they can get all the funds they need from the RBNZ in their upcoming Funding for Lending program at super discounted rates.

This is what Milton Friedman called the interest rate fallacy, and it indeed refuses to die. We can tell what monetary conditions are in the real economy, as opposed to financial liquidity, though the two can be linked, by the general level of interest rates. When money is plentiful, interest rates will be high not low; and when money is restricted, interest rates will be low not high. The reason is as Wicksell described more than a century ago:
"[The natural rate] is never high or low in itself, but only in relation to the profit which people can make with the money in their hands, and this, of course, varies. In good times, when trade is brisk, the rate of profit is high, and, what is of great consequence, is generally expected to remain high; in periods of depression it is low, and expected to remain low.
When nominal profits are expected to be robust, holders of money must be compensated for lending it out by higher interest rates. Thus, the same holds for inflationary circumstances, where nominal profits follow the rate of consumer prices. During the Great Inflation, interest rates weren’t low at all, they were through the roof well into double digits and higher by 1980. At the opposite end in the Great Depression, interest rates were low and stayed there because, as Wicksell wrote, the rate of profit was low and was expected to be low well into the future. High quality borrowers were given as much money as they could want while the rest of the economy was deprived of funds; liquidity and safety being the only preferences in what sounds entirely familiar. Link

When will the RBNZ correct this glaring economic growth deficit? If it cannot its time to seek remedies elsewhere and be done with a central bank.

by Audaxes | 27th Oct 20, 8:02pm 1603782129

When globally synchronized growth (read: reflation) is detoured by a eurodollar squeeze (dollar shortage), no matter where it hits hardest or shows up first, over time we expect a globally synchronized downturn to follow every time. The good parts never pull the bad parts out of it, rather the bad parts always bring down what’s not already bad. Link

by Kate | 28th Oct 20, 10:49am 1603835387

Time to seek remedies elsewhere - but where is elsewhere?

by MisterB | 27th Oct 20, 7:15pm 1603779342

David, not sure why the finger here isn't being pointed squarely at RBNZ. This is explicitly what the RBNZ wanted, under the misguided expectation it would promote consumer spending.

by bw | 27th Oct 20, 7:28pm 1603780112

Seriously. Who in their right mind would be spending at the moment? Most people know what's going on and are going to clutch any liquidity to their chests for dear life even at 0%. And if the Power that Be are stupid enough to try to penalise savers for preserving their capital, then we'll see what a Buyers Strike really means.
We have no shot at this ending well now. None.

by OreoContrarian | 27th Oct 20, 7:35pm 1603780503

A strike by way of a savers revolt targeting one bank a week would be great. On mass head to the local branch and withdrawal all your cash.
It may get Orr talking about what he is putting conservative people through with his obsession with saving the debt fueled.
Then we can have a discussion about deposit holder guarantees given it is the State that is pushing the interest rate to zero and increasing the risk that deposit holders face with no guarantee.
Further it is the State that has made if difficult to contract in cash via AML rules and the banks are doing the same.

by WellingtonInvestor | 28th Oct 20, 1:29am 1603801742

Don't banks need people to book in a day and time to pick up cash, so they can get it in?

What do people do with their cash when they take it out? Put it into another bank? Many seem to be buying houses, but I suspect some are also buying shares or other investments. But we don't know that these things aren't over inflated in value by the current situation, and if they go down, those savers could lose a lot of their money. When if they had left it in the bank, it's value wouldn't have decreased, unless a bank goes under.
It is all very concerning.

by OreoContrarian | 28th Oct 20, 12:57pm 1603843043

Keep it in a safe at home. The return is the same......

by J.C. | 27th Oct 20, 7:32pm 1603780377

This is explicitly what the RBNZ wanted, under the misguided expectation it would promote consumer spending

RBNZ doesn't have any behavioral economists. Not one.

by richard1965 | 27th Oct 20, 8:54pm 1603785255

No government and reserve banks have any forward thinking but are just following herd to play safe knowing fully well that future looks bleak and all QE, stimulus and various policies is just ticking time bomb based on hope.

by itsme | 27th Oct 20, 8:02pm 1603782151

Can someone tell me who the RBNZ is accountable to? I believe they are an independant body. Who can sack Adrian Orr?

by Brock Landers | 27th Oct 20, 10:03pm 1603789387

The fish and chip shop lady?

by treadlightly | 28th Oct 20, 9:45am 1603831511

This from the Reserve Banks website. "The Reserve Bank of New Zealand is New Zealand's central bank. It was established in 1934, and although not a government department, has been wholly owned by the government of New Zealand since 1936". https://www.rbnz.govt.nz/about-us/what-is-the-reserve-bank
It is only independent in the sense that out politicians have made an undertaking not to interfere with its operation. That could easily be changed again if so desired.

by K.W. | 29th Oct 20, 6:58pm 1603951102

Well, it did promote consumer spending. Consumers are out there buying houses like Kmart has a sale on.

by fortunr | 27th Oct 20, 7:31pm 1603780305

It would be foolish now to leave any investment money in NZ banks.

by Uninterested | 27th Oct 20, 7:52pm 1603781526

Kiwibank should be OK. Plus kiwibonds of course. Plus get quite a bit of cash out.

by Pragmatist | 28th Oct 20, 12:53pm 1603842790

These new fangled plastic notes aren't ao good for stuffing in your pillowcase.. Rustle rustle all night..

by karl seastrand | 27th Oct 20, 9:46pm 1603788376

fortunr...How likely do you REALLY think it is that there will be an OBR in 2021? You guys are scaring me now.

by fortunr | 28th Oct 20, 9:45am 1603831537

Not likely, in my opinion. Say between 1% and 5% chance, and banks have been surreptitiously nationalized anyway.
Still it is very bad value, in my opinion, to freeze your money in a NZ bank for virtually 0% return and no guarantee.

by karl seastrand | 28th Oct 20, 10:40am 1603834842

Thx, Agree a TD in a NZ bank is bad value but glad you put chance of OBR at single figures. I would also guess the chances are low so no need to break TDs early but will certainly move a decent amount to overseas countries that have deposit guarantees on maturity in a year when TD rates will be almost zero.

by fortunr | 28th Oct 20, 12:14pm 1603840474

Exactly right. If you have a long termed deposit with a decent rate, I personally would consider it like a relatively safe bond bought at a good time, so I would not break it at all.
Moving money overseas, assuming that you are aware of currency exchange aspects, is something that can be a great idea (I have already done it with some of my funds).

by J.C. | 27th Oct 20, 7:35pm 1603780538

You might be better off exchanging NZD into rat poison (Bitcoin). Higher rate of interest anyway.

by Steve J | 28th Oct 20, 7:19am 1603822745

I dunno, what’s the shelf life of rat poison?

by Ezy | 28th Oct 20, 7:39am 1603823997

A bit longer than tulips and there's not much of it to go around

by fortunr | 28th Oct 20, 9:55am 1603832116

Would you not classify Bitcoin as a high risk - high reward asset class ?
If this is the case, it can't be a substitute for traditionally defensive asset classes such as cash / term deposits.
I am not saying that it should be discounted completely, for as long as investors are aware of the speculative nature of this asset class. Maybe I am wary of it because I am not very familiar with it, I must admit.

by J.C. | 28th Oct 20, 10:47am 1603835248

Would you not classify Bitcoin as a high risk - high reward asset class ?

More importantly, your NZD is being devalued at an alarming rate. BTC OTOH is not.

by fortunr | 28th Oct 20, 12:15pm 1603840528

:-) this is true

by richard1965 | 27th Oct 20, 8:49pm 1603784962

This is forcing conservative safe player to come out and put money in high risk stock and many who are on the verge of retirement.

If people who are high in debt supported by government and reserve bank, should they also not have some instruments or policy to help depositors.

by WellingtonInvestor | 28th Oct 20, 1:31am 1603801862

I suspect a lot maybe buying houses, or maybe lending to family to buy houses. If a family member lends to another at the rate that banks lend out at, they maybe getting a reasonable return in the current market, and it takes the banks out of the picture.

by Ezy | 28th Oct 20, 7:47am 1603824465

Boomers close to me just dropped 1.5m cash on a property upgrade. Extremely worried about savings rate, obr and potentially devalued dollar. The thing is, kiwis still see property as a sure bet, no risk, no downside, she'll be right. And it's indeed a sure bet over a 30 year time frame, but awful for liquidity if it tanks in the meantime - retirees need liquidity to service a good lifestyle. Anyone in the reverse mortgage game will be rubbing their hands together, at the expense of the next generation as per usual.

by fortunr | 28th Oct 20, 10:02am 1603832549

It is all about investment horizon and appetite for risk. If you can afford (and have the time) to ride the swings of more volatile asset classes, then you might want to consider shifting your risk profile a little bit towards less defensive asset classes. Diversification is very important.

Who is going to get mightily screwed are all the investors (such as retirees or the new generations saving for a deposit on a house) who don't have such luxury. The current monetary policy is open, clear theft from such savers. It is a disgrace and it will fail like it did in Europe and in Japan, with 20 years of economic stagnation and close to zero inflation.

by donny11 | 28th Oct 20, 12:18pm 1603840714

Agreed, retirees can no longer invest in low risk bank deposits. They are forced into high risk classes of assets. Why? To keep the property ponzi going a few more years. Disgraceful

by fortunr | 28th Oct 20, 12:23pm 1603841016

I agree 100%. It is a rort.

by karl seastrand | 27th Oct 20, 9:39pm 1603787964

My 2.7% locked in for another year now looks fantastic. As long as I get my principal back on maturity of course.

by MadMax | 27th Oct 20, 9:54pm 1603788893

Never thought I’d miss all the Retired Poppy comments #nostalgia

by Brock Landers | 27th Oct 20, 10:02pm 1603789325

The central bankers are crooks and thieves.

It's not that I don't want to invest my money in productive ventures, I just don't want to invest it in a manipulated casino where the central bankers are deciding if prices are up or down today.

The entire financial system is a farce.

by Kate | 27th Oct 20, 10:06pm 1603789566

House of cards about to fall?

by Pusheen | 28th Oct 20, 1:14am 1603800886

ANZ will pull the rest of Banks in NZ further, when OCR goes to negative into delivering this mortal blow for this TD product in NZ. And is anyone guess if the rest of the world will follow it - or the NZ funds flying offshore instead?

by DIYman | 28th Oct 20, 7:17am 1603822626

pre pay your city council rates with it, council doesn't seem too worried about getting a couple of years of rates in advance

by Uninterested | 28th Oct 20, 7:47am 1603824461

Not a bad idea. You could do this with your credit card too I suppose.
Plus power bill etc. I doubt they would mind having money early.
But I wouldn't get too carried away, if you had health or marriage problems you may want all your money... Haha.

by bw | 28th Oct 20, 10:28am 1603834080

And your tax, of course; years of prepayment if necessary.
Just fill in the IRD number and send off the deposit. Hang on! That's like having an account with the Government/RBNZ isn't it; the money 'disappears' from the commercial baking system and into the RBNZ System, to be lent back out at their risk to the Commercial Banks? Indeed.....risk laundering at it's best.

by fortunr | 28th Oct 20, 12:29pm 1603841365

LOL not a bad idea at all once we get into a negative rates regime.
This demonstrates the absurdity and the paradoxical nature of the current monetary policies enforced by the RBNZ.
It is going to wreck the whole system and the powers to be are doing nothing about it. Orr should be dismissed immediately.

by Carlos67 | 28th Oct 20, 10:06am 1603832784

At this stage of the monetary cycle, those with large Term Deposits will just be hoping the rates do not go negative. There is going to be some pain next year in March April and your going to be happy just to have the cash full stop.

by KBKIWI | 28th Oct 20, 10:52am 1603835549

Shifted all my cash into solid dividend payers on NZX - I have no idea why anyone would prefer sub-1% returns in term deposits vs the 5%+ dividends you can get from companies with solid balance sheets.

by fortunr | 28th Oct 20, 12:49pm 1603842590

Yes there are some good, solid companies on the NZX that definitely deserve the investors' attention. Not all of them have their share prices totally over-inflated (yet). There are plenty of good stocks in several Asian markets too, still reasonably priced for the time being.

by linklater01 | 29th Oct 20, 8:00am 1603911632

KBKIWI,

While I still have approx. 55% of my portfolio in the shares you describe, I am comfortable with having almost 25% in cash-including Government bonds. Why? Liqiudity, pure and simple. I have been involved in the stockmarket for over 40 years and have seen many crashes. I don't know when the next one will come along, but I will be ready when it does.

by VeryInterested | 28th Oct 20, 1:29pm 1603844945

So what happens to banks if say 1/2 or more of depositors withdraw their funds?

by Bugger | 28th Oct 20, 6:41pm 1603863681

Banks don't need deposits anymore - this is the problem. Back in the old days, many moons ago, gold was the reserve currency, so you deposit your gold for cash. Then some clever American threw that idea away....and basically these days, bank credit is created via a few taps on the Keyboard by the RB/FED. Very, very, very soon banks will just be credit terminals for lending, they won't hold any cash. It's a topsy turvy world, all previous economic books need to make their way to the nearest paper recycle bin.

by Galloleous | 29th Oct 20, 7:28am 1603909680

Now put the real return beside those numbers after adjusting for inflation and....bam you are already at negative rates. And that's using the CPI which we all know understates actual inflation anyway.