BNZ kicks off the 2022 retail rate rises with a term deposit increase

Personal Finance / analysis

Surprisingly, the first retail interest rate rise in 2022 is for savers. BNZ takes its offers to the top of what all banks are prepared to pay, even if it is much lower than inflation's bite

21st Jan 22, 9:08am by David Chaston

The first move in retail interest rates in 2022 hasn't come for home loan rates, it is via BNZ raising some key term deposit rates.

They have raised their nine month, one year and eighteen month rate offers by +10 bps each.

That takes their one year offer to the highest of any bank, and their eighteen month offer matching Rabobank.

BNZ's new nine month offer isn't as good as Rabobank's 1.85% but it is at least +10 bps better than any of its main rivals, and +25 bps better than the current ASB offer.

This will be the start of what could turn out to be a steady series of term deposit rate rises in 2022, coming as the RBNZ steadily raises its OCR from the current 0.75% to perhaps as much as 3.00% in 2023 when this 'normalisation' cycle is done.

But guessing the future is always a fool's errand, and doing that for interest rates all the more so. What the RBNZ and bank analysts are signaling is that this upward track is justified based on what we know now. If there are other unexpected bumps in the road, another policy track will be justified to respond to those. No-one is saying they know the future, only how the policy picture appears currently.

Next Thursday, January 27 will set an important near-term signal - the release of the Q4 CPI. In Q3-2021 it was running at a 4.9% annual rate. Estimates for this next data release are about 6.0% pa. Around the world, the December CPIs that have been released have generally topped estimates. If we top our estimates too, a more forceful RBNZ policy response will almost certainly result. The RBNZ next reviews the OCR at its February 23 Monetary Policy Review.

Even though we are in a period of 'financial repression' (that is, savings returns are less than inflation), for term deposit savers it will always be better to get a higher rate than not, to minimise the costs. Savers will hope the RBNZ can win its battle with inflation because inflation is a thief of savings. Some short term pain will be the cost as almost all savers are aware. But it will be much worse if the RBNZ doesn't succeed in taming inflation.

An easy way to work out how much extra you can earn by switching is to use our full function deposit calculator. We have included it at the foot of this article. 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.

for a $25,000 deposit	Rating	3/4 mths	5 / 6 / 7 mths	8 - 11 mths	1 yr	18mth	2 yrs	3 yrs
Main banks
ANZ	AA-	1.10	1.50	1.70	2.20	2.20	2.50	3.00
	AA-	0.95	1.30	1.55	2.00	2.10	2.50	3.00
	AA-	1.00	1.50	1.80 +0.10	2.30 +0.10	2.35 +0.10	2.50	2.75
Kiwibank	A	1.20	1.60	1.65	2.20		2.50	2.75
	AA-	1.00	1.50	1.65	2.20	2.20	2.50	2.80
Other banks
Co-operative Bank	BBB	0.70	1.50	1.65	2.20	2.20	2.50	2.80
	BBB	1.25	1.65	1.50	1.85	2.00	2.15	2.30
HSBC	AA-	0.85	1.35	1.50	1.85		2.25	2.60
ICBC	A	1.15	1.60	1.70	2.25	2.30	2.55	3.05
	A	0.90	1.75	1.85	2.25	2.35	2.70	3.15
	BBB	1.00	1.65	1.75	2.25	2.25	2.55	3.00
	A-	0.95	1.50	1.65	2.20	2.10	2.50	3.00

Term deposit rates

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Source: interest.co.nz

Term deposit calculator

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48 Comments

by Waikatohome | 21st Jan 22, 10:07am 1642712851

Why are there no Tax Free savings options in NZ? The UK ISA allows for 20 000 pounds a year to be saved tax free. It's strange that Captial Gains are not taxed, but wage earners are taxed on earnings and savings. These are pathetically low savings rates- I think the Government should do more to incentivise Kiwis to put something aside for a rainy day.

by GV 27 | 21st Jan 22, 9:39am 1642711140

You can't put aside what isn't left over. You can't not spend what someone doesn't pay. You can't save what the government takes in tax. All of these are heading in the wrong direction. We've made disposable income a luxury.

by company of heroes | 21st Jan 22, 10:00am 1642712449

Agreed, especially with "the Government should do more to incentivise Kiwis to put something aside for a rainy day." It really annoys me to see governments, parties and RBNZ are discouraging savings. They even encourage people to use their kiwi savers that are supposed to be for their retirement to buy houses. It's pretty much that they encourage people to have no saving and chuck everything into houses. And now some people even think that it's good for people having debt / mortgage in such high inflation situation. It's just ridiculous.

by Galloleous | 21st Jan 22, 10:14am 1642713267

My main question:

Why in hell is Kiwisaver taxed!? and annually at that!!!! those lost compounding gains over 40+ years really bite.

If you do want to tax it, why not on the final amount when you start drawing down on it?

ヽ(ಠ_ಠ)ノ

by Brutus Iscariot | 21st Jan 22, 11:48am 1642718892

That's what other countries do. You are taxed only on withdrawal, not on the way through.

This allows investors to get the full benefit of compounding.

by Beanie | 21st Jan 22, 5:04pm 1642737885

No. Get your calculator out and do the maths. Taxed going in, or taxed going out after your compounding returns, makes no difference.

The only difference will arise from different tax rates being applied. You might expect a lower tax rate in the future when you withdraw it, but I wouldn't bet on it. There is a lot of water to go under that bridge.

by stacking_cheddar | 21st Jan 22, 7:17pm 1642745855

I think the point they are making is tax going in vs tax going out vs tax annually on dividends vs taxed annually on un-realised gains. Put another way, is there another jurisdiction that treats super contributions less favourably than NZ?

by hum | 21st Jan 22, 1:44pm 1642725854

Do you get taxed if you invest in a fond outside of ks or etfs for example?

by RickStrauss | 21st Jan 22, 2:41pm 1642729311

Because someone needs to fund society's services and too many MPs have been invested heavily in property, the sacred untaxable cow.

by Carlos67 | 21st Jan 22, 10:40am 1642714807

There was tax free savings back when I was a kid. Things slowly changed, they brought in a tax which you could then claim back when you filled in your IRD return and then things slowly got predictably worse to the point the whole form changed and you could no longer claim it back at all. Basically now if you have a mortgage you don't save, there is no point you put it towards the mortgage and keep a small rainy day fund under your mattress in case you loose your job. You do not keep cash in the bank because WINZ will just ping you for it. This country loves to penalise savers, there is zero motivation to save.

by Lanthanide | 21st Jan 22, 10:58am 1642715884

Basically now if you have a mortgage you don't save, there is no point you put it towards the mortgage and keep a small rainy day fund under your mattress in case you loose your job.

Get an offset mortgage, then your savings pay interest at effectively your mortgage rate - AND you don't pay any tax on it. I've got enough cash to buy 2 teslas outright, and it's offsetting my mortgage.

by Waikatohome | 21st Jan 22, 11:14am 1642716869

I have one, but this is only available to people with a house. We need to give those that have no assets a leg up. Now that the housing market is flat to falling and interest rates are rising, it would be an ideal time for a government backed tax free savings scheme. Savers may be able to get a decent deposit together as the prices won't be accelerating away from them. We shouldn't be encouraging people to dip into kiwi saver. Savings are different to retirement savings.

by stacking_cheddar | 21st Jan 22, 1:56pm 1642726600

Now that we finally have cheap and easy retail access to decent overseas low-fee passive share funds, the defacto wealth tax on FIFs also seems totally anachronistic.

by Caughtinthemiddle | 21st Jan 22, 9:32am 1642710761

Waikatohome, you stole my thunder. With you 100%. The Government definitely needs to put out other investment opportunities. There are many reasons why housing is the "go to" in NZ for investors but the paucity of other options is definitely one of them. If we could invest in alternatives such as ISA's, the work needed to cool the housing market with blunt tools such as OCR and lending criteria would be less.

by VTHO | 21st Jan 22, 9:39am 1642711155

Anything less than inflation is complete BS.

by tothepoint | 21st Jan 22, 9:52am 1642711977

Years ago (the Muldoon era) "Inflation-adjusted Savings Bonds" were available in NZ. These bonds were government guaranteed and gave a 2 per cent taxable return above the inflation adjustment (which wasn't taxable). An individual could purchase up to $20,000 of these bonds from memory.

How about a re-issue?

TTP

by VTHO | 21st Jan 22, 11:32am 1642717944

Before my time, so never heard of these. Sounds decent. Make it 50k per person. Never going to happen though lol.

by RickStrauss | 21st Jan 22, 2:45pm 1642729547

Very interesting, thanks Tim. I'd imagine these would foment even more debate over the robustness of the CPI measure today too.

by Carlos67 | 21st Jan 22, 10:53am 1642715583

Yes and No it totally depends on what stage of life your at. Once you get to a certain point your don't really care about interest rates that much. Sure I would have a whole lot more money on top of money but hopefully you get to the same stage in life to fully understand it.

by al123 | 21st Jan 22, 11:38am 1642718308

What I think you mean is 'it depends on how much money you have.' Nothing to do with 'stage of life.' I'm sure if you have lots of money then 'having more money on top of money' is not so much a concern.

by Zen20 | 21st Jan 22, 12:34pm 1642721646

It's the Golden Rule : he with the gold makes the rules

by Nzdano | 21st Jan 22, 9:57am 1642712222

Can anyone explain why banks even want deposits if they are able to increase the money supply to lend?

Is it simply regulatory?

by company of heroes | 21st Jan 22, 10:03am 1642712623

I think BNZ's website has explained this well:

Banks get their money from a range of sources. One of the largest sources is from deposits in bank accounts. These deposits include savings and cheque accounts, term deposits, PIEs, loans, credit cards, bonds and so on. In effect, anyone with money in a bank account or term deposit is “lending” the bank their money. The bank pays them interest in return and promptly puts that money to work by lending it out again for a slightly higher rate of interest. That’s why interest rates on savings are always lower than home loan rates.

In addition to bank deposits as a source of funding, banks also borrow money from the Reserve Bank of New Zealand and overseas sources. When the cost of borrowing this money goes up or down, that cost (or saving) generally gets passed down the line to customers, which is when we see our home loan rates rise and fall.

How mortgage rates are calculated - BNZ

by Nzdano | 21st Jan 22, 10:21am 1642713705

That is fairly simplified and not exactly how it works in practice.

In reality they lend it out first, and then get deposits later. But based on the following article I'm not sure why they even need to finance their lending.

https://www.sciencedirect.com/science/article/pii/S1057521914001434#!

The suggestion here is that deposit taking is required to allow them to create new money, but I'm not sure why that is.

by company of heroes | 21st Jan 22, 11:19am 1642717146

I think it's down to cash flow. Banks needs to meet RBNZ capital requirements to be in business. Once they are in business, they probably can lend it out first then get deposits later. But they will need to have a healthy cash flow just in case that their customers want to take out their savings. Banks won't need to secure deposits much on a OCR downtrend. However, when OCR and cost of oversea borrowing go up, that increases their cost of borrowing, hence it can reduce their cash flow. They will have to attract and secure more deposits to keep their cash flow healthy.

by Tom Joad | 21st Jan 22, 10:42am 1642714974

The irony is that many of those "deposits" are created on the said banks keyboards.

When a bank creates a mortgage for say $500k it credits the recipients account with $500k in exchange for a promissory note from the borrower. It literally creates the deposit out of thin air. The "money" is then transferred from the borrowers account to the house sellers account when the sale goes through.

That seller may then put it on deposit or buy other assets/goods with it. Regardless of what they do the newly minted "money" will continue to be a "deposit" within the NZ banking system unless exported overseas for assets or goods and services.

It truly is a money-go-round

by Nzdano | 21st Jan 22, 11:08am 1642716507

Because of this, I don't understand why banks pay interest on deposits at all, when they can create their own for free by issuing a mortgage.

by Cheetahlegs66 | 21st Jan 22, 11:23am 1642717393

There is a requirement that banks actually hold real money. The amount is a percentage of their lending and the rate varies residential vs commercial.

by MisterB | 21st Jan 22, 11:51am 1642719096

They do create money supply from the creation of credit, but the recipient of the new money supplied is the vendor. So, while it creates a deposit in the banking system, that specific bank still needs to fund their balance sheet by attracting a deposit. The job on a bank treasury is to balance the lending and deposits in the most efficient way, and get the right timing matched - loans are for years, deposits typically shorter - via swaps etc.

Lot's of moving parts, but essentially that's the cliff notes as I understand them (not an expert)

That's how new credit creation impacts inflation - there is more money in the system, but let's say the same number of actual things is the same.. it will then cost more money for same said thing. Exhibit A, NZ house prices in 2021.

The converse happens of course, less credit means less new money in the system so prices can contract on credit fueled purchases like Houses.

by Eschaton | 21st Jan 22, 2:56pm 1642730214

This process is also why debt can only ever go up, most of it will never be repaid. It's a large regulated ponzi-like scheme. This nutty system creates winners, losers and many problems. Sound/hard money people are worth listening to on the matter, as are historians and philosophers of money.

by RickStrauss | 21st Jan 22, 3:02pm 1642730521

I suspect it won't change until external factors (resource scarcity, limits of growth, international unrest) cause a collapse. Money is a socially shared fiction but in the end there are people and resources.

by Essen | 21st Jan 22, 11:41am 1642718502

Bank Capital Review - summarised (rbnz.govt.nz)

by Fluffybunny | 21st Jan 22, 11:42am 1642718566

Capital adequecy ratios. Yes regulated but fundamentally no different from other businesses.

They need certain amounts of cash. This covers risk, funds operating expenses. The risk part is just in case, ie if loans stop getting paid, or if high numbers of people want thier money back, can the banks still cover operating expenses.

by Eschaton | 21st Jan 22, 3:11pm 1642731066

'Operating expenses' ... What like massive salary and bonus packages for the higher ups? Also dividends for the murky shareholder base including many of the old banking families in the northern hemisphere that drew up plans for the global central banking system.

by Eschaton | 21st Jan 22, 10:16am 1642713374

Negative real rates for some time yet. Keep running faster, to go backwards.

by Gen X-ploited | 21st Jan 22, 10:36am 1642714609

Funny how the banks now want our money just as the risk of an OBR event increase.

by napierboy | 21st Jan 22, 11:27am 1642717666

I guess it's always better to kick of the year by dangling a carrot before using the stick.

by Llama_360 | 21st Jan 22, 11:31am 1642717895

When banks borrow from overseas to fund their mortgage lending, are they borrowing in NZD? Who are they borrowing all these NZDs from?

by Audaxes | 21st Jan 22, 12:19pm 1642720793

When banks borrow from overseas to fund their mortgage lending, are they borrowing in NZD? Who are they borrowing all these NZDs from?

Banks currently borrow a little over NZD 80bn (according to RBNZ) from foreign market sources to diversify their funding. They normally borrow USD from their London based subsidiaries and hedge the liability into NZDs with cross currency basis swaps. Local NZ banks pay the basis.

by Averageman | 21st Jan 22, 11:34am 1642718068

Govt is at a fork in the road with a politically very unpalatable path in either direction. A) Allow rampant hyperinflation to further promote inequity and destroy lower and some middle class (core Lab voters) and punish conservative savers/retired, or B) Lift interest rates above the level of inflation and pop the mother of speculative bubbles punishing the speculative risk takers while saving lower and some middle class core Lab voters) and conservative savers/retired.

Based on left "doctrine" path choice seem obvious but looking at actions to date its increasingly looking like the biggest political sell out in NZ history is approaching.

by Fluffybunny | 21st Jan 22, 11:52am 1642719164

It's not a govt decision at this point. They played thier hand when creating the stimulus and not doing cccfa sooner etc. But the housing price retreat, and interest rates are global and The nzd must ultimately sit at a certain range.I

ts just got more risk for us as we've not had a correction for a long time (no the gfc was not a correction, twas a speed bump)

Reducing House prices (mostly paper gains anyway) in nz will be an easy casualty to accept vs not killing the dollar, maintaining employment and avoiding big inflation (staying in power).

Most people agree prices should come Down. What do most people really lose if prices drop 30% feel good factor, illusion of wealth? Most long term investors are diversified and can take advantage of bear markets.

by HouseMouse | 21st Jan 22, 11:56am 1642719410

Nice summary of the dilemma (a wicked problem) which is a major one.

What I find fascinating is why there is next to no analysis and outline of this dilemma by economists and financial commentators.

Personally, I think it's because of an intellectual deficit amongst them.

by Eschaton | 21st Jan 22, 3:00pm 1642730418

Hence why the solution proposed by Professor Steve Keen is so interesting. https://www.patreon.com/posts/new-liberals-61077693

by RickStrauss | 21st Jan 22, 3:33pm 1642732421

Great idea. This essentially helps out the worst-affected owner-occupiers while not unduly bailing out speculators.

The monetary reset would:

Give every Australian adult an identical sum of government-created money;

Require those who had debt to use that money to pay down their debt;

And it's a great deal more fair on the taxpayer than bailing out only the banks (e.g. Ireland).

by Roy1 | 21st Jan 22, 11:43am 1642718635

Term Deposit interest rising is putting a stamp / confirming rising interest rate going forward, not that anyone has a doubt as it is reserve bank themselves who have it them in catch22 situation.

How they manage going forward will be interesting as have to take a Full U Turn from what they have been promoting and supporting since last two years.

by fortunr | 21st Jan 22, 1:07pm 1642723636

Wait until investing in term deposits. Deposit and mortgage rates are going to be much higher than they are now. Just look at what has been happening to swap rates and bond pricing as of late.

I think that an OCR peak close to 4% is a very distinct possibility. If you want to invest in term deposits, go short, relax back and enjoy the rates curves steepening in the neat future, as markets start to finally acknowledge that the time of the big rates adjustment has finally arrived.

Moreover, less money is invested in longer term as bonds and term deposits, the steeper all longer term rates will be forced to go.

by CWBW | 21st Jan 22, 3:44pm 1642733051

Good strategy by BNZ in capturing market share by providing not even a loss leader.

The new customers would be worth >10x the premium paid to acquire them if BNZ can convert them into their credit users- which usually occurs naturally without further costly investments or marketing.

by MisterB | 22nd Jan 22, 11:14am 1642803245

I very much doubt that core TD users are likely to convert to credit customers. The demographics of this base are heavily skewed towards older folk.