Treasury has announced increases to the Kiwi Bond interest rates they offer.
Kiwi Bonds effectively set the risk-free benchmark for New Zealand retail savers.
The new rates are:
| Maturity | Rate |
|---|---|
| 6 months | 2.00 percent per annum |
| 1 year | 2.50 percent per annum |
| 2 years | 3.00 percent per annum |
| 4 years | 3.25 percent per annum |
Rates offered by banks for their term deposit products are all higher than these, and that difference is the risk premium for holding your funds in a private bank. There is no tax-payer supported deposit insurance currently in place in New Zealand (although officials are working towards implementing a scheme).
After this latest rise in Kiwi Bond interest rates, the risk premium for holding money in a trading bank is now the lowest we have seen it. Here is a summary of the Kiwi Bond offer rates, compared to the average bank offer rates of all retail banks in New Zealand.
| Term | 6 mths | 1 yr | 2 yrs | 4 yrs |
| p.a. | % | % | % | % |
| Kiwi Bonds | ||||
| 31-Dec-18 | 2.25 | 2.25 | 2.25 | 2.50 |
| 31-Dec-19 | 1.00 | 1.00 | 1.00 | 1.00 |
| 31-Dec-20 | 0.10 | 0.10 | 0.20 | 0.20 |
| 31-Dec-21 | 0.70 | 1.10 | 1.50 | 1.90 |
| 2-Jun-22 | 2.00 | 2.50 | 3.00 | 3.25 |
| Bank averages | ||||
| 31-Dec-18 | 3.20 | 3.36 | 3.51 | 3.76 |
| 31-Dec-19 | 2.63 | 2.59 | 2.55 | 2.55 |
| 31-Dec-20 | 0.85 | 0.89 | 0.91 | 0.95 |
| 31-Dec-21 | 1.53 | 2.13 | 2.48 | 2.95 |
| 2-Jun-22 | 2.42 | 3.12 | 3.54 | 3.87 |
| Risk premium | ||||
| 31-Dec-18 | 0.95 | 1.11 | 1.26 | 1.26 |
| 31-Dec-19 | 1.63 | 1.59 | 1.55 | 1.55 |
| 31-Dec-20 | 0.75 | 0.79 | 0.71 | 0.75 |
| 31-Dec-20 | 0.83 | 1.03 | 0.98 | 1.05 |
| 2-Jun-22 | 0.42 | 0.62 | 0.54 | 0.62 |
At these new levels, bank term deposits offer an unusually low premium over what the Treasury offers.
The above table is only a summary at the points in time stated. The premiums will vary in between the dates listed above. Bank term deposit offers vary regularly based on a range of competitive, market demand and cost of funds issues. They don't depend on what Kiwi Bond rates are. But depositors should be aware of these issues.
When taxpayer-backed deposit insurance is effective, risk premiums are likely to fall again. In fact, there may be no case for there to be any risk premium of bank term deposits when they are backed by the State.
5 Comments
Pending? I thought this had been parked and put into the 'too hard basket.' I follow this closely and the lack of a guarantee drives me to Kiwibonds vs retail deposits. l believe NZ and Israel are the only 2 developed countries without Government backing of deposits. Happy to be corrected.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.