The recent appearance of a 4% rate for a one year term deposit, from SBS Bank, is indicative of the fast-moving rate landscape for savers.
Although you can now get a 4% or higher rate for terms of four or five year from a number of banks, including the majors, no one else has matched that level for a one year rate - yet. And it has to be said "yet" because it is surely coming and relatively soon.
Mortgage rates are rising, pushed up by wholesale interest rates. And those wholesale bond rates are rising quickly now. On Monday they will get a good kick along from international bond market activity at the end of last week. The secondary market has opened locally with the NZGB 10-year breaching 4%, for the first time since 2014.
That same secondary market has trades for the NZGB two-year up at 3.59%, also a notable rise from the Friday level.
Wholesale swap rates are probably moving up from the same forces, or will do when trading gets active and serious later on Monday.
Retail term deposit rates don't yet reflect these recent moves up. They have some catching up to do.
But there is another factor at play - the demand for funding.
If home loan demand is falling, and it probably is, it can only really fall to the level of rollovers. And that floor sets what banks need for funding. They can get it from either wholesale or retail sources. Wholesale can be a preference because that type of funding comes with a decent duration, usually five years or longer. We are seeing an uptick in bank activity in wholesale markets recently, and there will be more this week.
Unfortunately for bank treasurers, wholesale funding comes from investors who are yield-savvy. And recently they have raised their requirements for yield. And if bond investors are going to subscribe, they can only get that yield if they hold to maturity. In a rising interest rate market, higher rates depress the price of the bond after it is issued.
As we have previously noted, we are in a rare situation where retail term deposit offers are now lower than benchmark swap rates. We haven't had this situation since 2008.
Bank treasurers will be eyeing that discount. If money is less expensive from term deposit savers, they will target it despite the reluctance of most savers to offer it for any term longer than a year. In the mix with longer term wholesale funding, money from retail savers enables then to build margin.
But this is only worthwhile so long as there is loan demand.
An easy way to work out how much extra you can earn 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 (and especially if you are in the 39% tax bracket - PIEs are taxes at 28% flat).
The latest headline rate offers are in this table after the recent increases.
| for a $25,000 deposit June 13, 2022 |
Rating | 3/4 mths |
5 / 6 / 7 mths |
8 - 11 mths |
1 yr | 18mth | 2 yrs | 3 yrs |
| Main banks | ||||||||
| ANZ | AA- | 1.65 | 2.50 | 2.70 | 3.15 | 3.30 | 3.60 | 3.80 |
 |
AA- | 1.65 | 2.50 | 2.70 | 3.15 | 3.30 | 3.60 | 3.80 |
 |
AA- | 1.50 | 2.30 | 2.45 | 3.00 | 3.30 | 3.60 | 3.80 |
 |
A | 1.65 | 2.50 | 2.65 | 3.15 | 3.65 | 3.80 | |
 |
AA- | 1.60 | 2.40 | 2.60 | 3.15 | 3.30 | 3.60 | 3.80 |
| Other banks | ||||||||
| China Constr. Bank | A | 1.90 | 2.95 | 3.15 | 3.55 | 3.65 | 3.90 | 4.20 |
| Co-operative Bank | BBB | 1.20 | 2.30 | 2.45 | 3.00 | 3.30 | 3.55 | 3.80 |
| Heartland Bank | BBB | 1.75 | 3.00 | 3.00 | 3.60 | 3.60 | 3.60 | 3.80 |
| HSBC | AA- | 1.40 | 2.20 | 2.40 | 2.85 | 3.40 | 3.60 | |
| ICBC | A | 1.85 | 2.70 | 3.10 | 3.60 | 3.60 | 3.75 | 3.95 |
 |
A | 1.85 | 2.90 | 3.10 | 3.50 | 3.60 | 3.85 | 4.15 |
 |
BBB | 1.50 | 2.35 | 2.50 | 4.00 | 3.30 | 3.65 | 3.80 |
 |
A- | 1.65 | 2.50 | 2.80 | 3.15 | 3.40 | 3.60 | 3.80 |
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31 Comments
Probably something a bit more active. Carbon farming, commercial or industrial conversion or expansion project, that sort of thing. Theres also a heap of owner operated businesses owned by retiring boomers that you can pick up for a deal.
Definitely riskier than bonds or a savings account, likely requires some existing knowledge, and time.
No need for them. Asset allocation isn't that complicated - you want to diversify across asset classes. Too much TDs and you don't keep up with inflation so you wake up in a decade or two wondering why your income doesn't go very far. Too much shares or property and if you have to withdraw you are exposed to the whims of the market and can suffer sequence of returns issues.
There are endless resources on this online. Advice for drawing down/living off capital is generally keep a couple/few years spending in cash or near-cash, could be laddered term deposits. The majority should be invested, more in risky assets if you are younger, more in safe assets as you age. Mixture of property and shares, range of geographies. Maybe a few % in crypto or gold or whatever spice you like.
A pure TD strategy is as risky as a pure share strategy, just a different type of risk.
It'd either be expanding a current business, starting a new one, or some sort of project.
Actually if I was at a point I had 5 mill in cash just 'sitting around' for a year I'd blow it enjoying myself, because I'm obviously no longer beholden to the mighty dollar.
As per another article, the banks are also hoarding vast amounts of printed money from the RBNZ, so hence they don't really need funding from retail, they've getting it more cheaply from Mr Orr. So basically taxpayers are crowding out private sector funding - and so we're all getting punished for the benefit of bank profits.
I assume the Reserve Bank's Funding for Lending scheme, under which the RBNZ provides cheap funding to the banks at the Official Cash Rate, must take some of the blame here. Why would the banks pay more for term deposit funding when they can get it cheaper from the RB? Of course, the RBNZ never properly accounts for its actions ...
Who do you consider to be a "pro"? In my opinion, Bitcoin, no way, I'm near retirement, maybe if I was younger I'd put some $'s into I could afford to lose. Oil, after the US recession it could be a good buy. Gold, of the three this would appeal most. I'm still thinking cash is currently your best option.
I don't know why all the worry about how to protect your nest egg. Seven Sharp tonight brought in another 5 minute expert (where on earth do they get all these young experts?) She started by observing the 7% current inflation (I imagine some Cabinet Minister will be blaming the state funded TVNZ CEO tomorrow for "spooking the punters"!) and was questioned by the co-hosts on what ordinary kiwis could do to protect their capital.
Among the usual financial whizz talk about 'diversification", and "taking the longer view", she mentioned bonds as a good protection against inflation. Whow! How obvious and simple. Where can I sign up for a 7%+ bond? Of course no mention that the IRD will help themselves to the first third of your interest return!
Of course the usual financial adviser caveat...."if I knew what I was talking about, I wouldn't be working in this job!"
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