There hasn't been much to cheer about for term deposit savers for a long time now. And there still isn't.
The 'best' they can do is grab ASB's 1.75% five year rate. Or perhaps China Construction Bank's 1.80% five year offer.
But with international benchmark rates on the move higher, perhaps you may be thinking higher local term deposit rates are on their way.
If rates are about to rise, perhaps a short-term 'Notice Saver' type rate for 60 or 90 days at 1.00% (Rabobank or Kiwibank respectively) is an interim move.
The first sign these rising benchmark rates may impact our TD market came when ASB offered its higher long term rates. Then CCB.
Now SBS Bank is offering 1.35% for three years, the highest for that duration. Plus they are offering 1.20% for 24 months. Both are increases from 1.00%, so represent a meaningful move up.
There actually isn't much appetite for terms over two years, and even the two year term itself doesn't hold much attraction for Kiwi savers. We are a very short-term-focused lot.
So rising rates are "interesting" but probably won't move the dial for most investors. But they will be watching.
However, if you think rates will be higher in the future, say over the next six to nine months, you will probably wonder about the wisdom of committing now to a 2, 3 or longer term. That is where the Notice Saver type offers come into play, or even just leaving funds at-call.
Savers know that international benchmark rates are rising because of the "reflation trade". That is, international investors want to be paid more because they see inflation re-emerging.
Professional investors are already raising their expectations. Last week's "Green Bond" offer from Mercury (rated BBB+) was priced at 2.16% pa for a 5 year term. And that is, unusually, higher than any investment grade bank offer for five years.
So you might think that rate offers over 2% are being weighed up now by banks.
Remember, a market bond offer has proper liquidity. You can sell it on the listed NZDX market at any time for the going rate. Bank term deposits are not liquid in the same sense. Yes, the bank will probably cash you out if you have a good reason, but you will have to accept an interest rate reduction to achieve that. Matching some of that, a bond market sale before maturity may involve a price discount if yields are rising, and will incur a broker fee.
But if you hold to maturity, the corporate bond market is currently offering better yields than offered by banks.
That could change, especially if the benchmark yield rises shift to shorter terms.
However holding that back is RBNZ policy. Short term yields (less than 3 years) are constrained by the RBNZ, its OCR level, and its bond buying which has the aim of keeping yields low. It's is suddenly holding $53 bln of NZGBs and LGFAs, all bought to keep benchmark interest rates from rising. They have given themselves a current upper limit of $100 bln, so they are only utilising half that at present. They have plenty of firepower left if their goal is keeping short term interest rates low.
But in the world of international bonds, $100 bln is just small change.
So you as a saver have to make an assessment. Will a more optimistic US Fed lead rates higher? Is inflation returning, requiring central banks to raise benchmark rates to keep it from overshooting? Or is all this a mirage? If it is, perhaps now is the time to lock in slightly higher rates. If inflation is a real threat, perhaps waiting a short time to see retail rates really move up to match inflation is a better view? No-one can tell you what to do. The financial world is full of 'forecasts' that never panned out. No-one knows the future, not even the Fed. Certainly not financial journalists, even less so the self important 'industry experts' or newsletter writers. (Or even the commenters on this website.) You are on you own on this judgement.
Not in the table below are four and five year rates. There are none offering 2% yet.
One 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 | 0.80 | 0.80 | 0.80 | 0.85 | 0.85 | 0.90 |
 |
AA- | 0.45 | 0.80 | 0.80 | 0.80 | 1.00 | 1.00 | 1.25 |
 |
AA- | 0.45 | 0.80 | 0.90 | 0.80 | 0.80 | 0.85 | 0.85 |
| Kiwibank | A | 0.45 | 0.90 | 0.80 | 1.00 | 0.90 | 0.90 | |
 |
AA- | 0.45 | 0.80 | 0.85 | 0.80 | 0.80 | 0.85 | 0.85 |
| Other banks | ||||||||
| Co-operative Bank | BBB | 0.40 | 0.95 | 0.95 | 0.95 | 1.05 | 1.15 | 1.25 |
 |
BBB | 0.45 | 0.90 | 0.90 | 1.00 | 0.95 | 1.00 | 1.05 |
| HSBC Premier | AA- | 0.45 | 0.80 | 0.80 | 0.80 | 0.80 | 0.80 | |
| ICBC | A | 0.50 | 0.80 | 0.90 | 0.95 | 0.95 | 0.95 | 0.95 |
 |
A | 0.25 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.05 |
 |
BBB | 0.50 | 0.90 | 0.90 | 1.00 | 1.00 | 1.20
|
1.35
|
 |
A- | 0.45 | 0.80 | 0.80 | 0.80 | 0.80 | 0.80 | 0.90 |
Term deposit rates
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32 Comments
As I've pointed out repeatedly, Mr Chaston, the global 'economy' has been on life-support since the so-called GFC.
Perhaps the answer to your question could be found in an article comparing global debt-issuance with globally-claimed GDP, since then. For good measure, add in (physical) depreciation - otherwise known as entropy.
If interest-rates are increased, bankers will temporarily advantage themselves at the expense of the fully-extended. It will only be temporary because the result till be an accelerating contraction - otherwise known as collapse. Foreclosure or not, on the way down, is an interesting :) question? It depends on the rate and depth of the descent.
Just remember that the likes of the Biden debt-injection, isn't a physical 'stimulus', it's a keystroke-issuance of proxy. It won't 'unleash growth in the US economy'; at this stage in the trajectory, it can only result in a commensurate devaluing of $$$$.
Agree - like the Enron case that gets drilled into business students in most papers....it will be rouge central banks and finance ministers that doubled down, or even tripled down on failing economic strategies - enriching some in the short term, but creating long term economic chaos and suffering for many.
Great comment - but they didn't create the long-term economic chaos.
We set up mechanisms to facilitate growth - and only of a favoured echelon, at that.
That growth has reached it's zenith - well foretold by those who know that research needs dispassion and divestment of assumption.
Sure, there will be winners, losers, and fighting between them over who will be which. But Central Banks aren't to blame, we - collectively - are.
... " rouge central banks and finance ministers " ....
I love the mental picture that paints ... Adrian Orr & Grant Robertson done up in evening gowns , wigs , rouge & eyeliner , high heels , Louis Vuitton handbags....
.. " ooooh Granty poo , OK if I drop the OCR again ... hmmm ?
" Yes , luvvy ... the economy needs more juice .... by the way , love the tiara , toots ... its really you ... "
I agree 100%.
And when they are finally forced to acknowledge reality, and to surrender to the overwhelming forces of the markets finally asserting themselves, it is going to be carnage in some asset classes, especially housing, and especially housing in NZ, where the bubble is inflated beyond belief. It has all been a big lie, kept artificially alive by central banks, but it won't last for much longer.
Some interesting thoughts from Dalio here on interest rates/bonds/inflation.
> But in the world of international bonds, $100 bln is just small change.
Dead right, and this is why I think the specter of inflation is a myth.
Inflation is not just about rising prices. It's an increase in the money supply relative to available goods and services. This is why we're not seeing any meaningful inflation despite $53 billion of newly "printed" money. We're not printing money through our LSAP program, we're monetising debt. The former is highly inflationary, the latter isn't.
The reason we're not printing money is that we're constrained by the gigantic international bond market. If we were to just start printing money, government bond yields would rise accordingly, which is exactly the situation we're trying to avoid. So we monetise debt instead, but the problem with this is that when the debt is paid down (or gets defaulted on), this newly created money disappears, along with the corresponding debt instruments which we're also treating as money. This process is highly deflationary, and not just limited to the bond market. As people stop borrowing and start paying down debt, the money supply contracts.
This is why the government and Reserve Bank are so desperate for people to borrow and spend, but they're having trouble getting people to do it. More and more incentives keep coming through the pipeline, to the point where they're currently trying to shove money down people's throats. But the psychology of a contraction is to save money and avoid risk, which is exactly what people are doing, and is reflected in savings and (non-mortgage) borrowing rates. This is deflationary behaviour, not inflationary, and given the amount of debt there is to pay down and default on, I can only see deflationary pressures outweighing inflationary ones in the short to medium term.
What will be the likely outcome, given that banks now ask FHB to account for everything but how many squares of toilet paper they use. Even to the point of - can you sell your car, cancel health insurance? etc. Whereas even 3, 4 years ago a mortgage broker could easily explain away to the bank any big ticket purchase provided there was something to put in the notes, ie it was a one-off expense - marriage, honeymoon, cat-fixed etc
Big question - is FHB money so marginal that this total turn-around in spending expectations don't impact our economy?
Also, does the increasing trend of FHB having to rely on 'bank of mom and dad' impact on the spending habits of mom and dad? (I'll bet it does).
Completely agree that inflation is off the cards for the foreseeable. We will continue to see asset price booms of course - shares and other financial assets (driven by cash rich bond sellers) and residential property (driven by easy & cheap credit). Also with you on the deflationary impact of QE (Govt is now paying dividends to itself for a start).
But, whether Govt spending ('printing money') will cause inflation depends on what spend the money on. If Govt decided to build 10,000 homes next year, they would be competing with the private sector for labour and materials - this could cause inflation (how widespread I'm not sure). But, if Govt decided it wanted to hire lots of unemployed young people to fence off waterways on farms that would not create inflation (and would be good stimulus).
Adrian Orr s**rts himself at the thought of house prices dropping a measly few percent. We have spineless whimps running the cutter who get their jolly’s from slashing interest rates and printing money. Monetary vandals who are wrecking the financial system with their every action.
Yes ED it is exactly that. Forced is a good word for having no other option. Retiree’s budgets whereby they had some good degree of financial independence has been blown asunder. We know a not so young couple who bought and moved into a small two bedroom job and now renting out the four bedroom family home. Another problem looming is those that have been forced to forsake their health insurance, vulnerable and susceptible stage of life of course, now going to have to land up on the public waiting lists.
To get a great perspective on what is truly going on and going to happen this guy is well worth a look.....
I hope you can get as much out of him as I feel I have :)
Good on you, same advise don't - put into OZ account for more stable economic think tank, some into that productive farm banks, if must? - then spread into potential new RE land area..don't build, don't past speculative land valuation price, NZ will still be away by around 30years.. to become like RE Japan cost now.
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