Treasury has announced increases to the Kiwi Bond interest rates they offer. The previous increase was eight weeks ago.
Kiwi Bonds effectively set the risk-free benchmark for New Zealand retail savers.
The new rates are:
| Maturity | Rate | change |
|---|---|---|
| 6 months | 3.00 percent per annum | +100 bps |
| 1 year | 3.25 percent per annum | +75 bps |
| 2 years | 3.50 percent per annum | +50 bps |
| 4 years | 3.50 percent per annum | +25 bps |
Rates offered by banks for their term deposit products are almost always higher than these, and that difference is the risk premium for holding your funds in a private bank. But for a six month term that has now effectively vanished. Banks and the Government are now both offering the risk-free rate. 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 remains near the lowest we have seen it, especially for terms of one year and less. 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 |
| 28-Jun-22 | 3.00 | 3.25 | 3.50 | 3.50 |
| 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 |
| 28-Jun-22 | 3.04 | 3.93 | 4.13 | 4.38 |
| 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 |
| 28-Jun-22 | -0.04 | 0.68 | 0.63 | 0.88 |
At these new levels, the premium bank term deposits offer has vanished for a six month term, although it is being maintained at lowish levels for longer terms.
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.
4 Comments
David I think there's a stray minus sign in your table there (6 month risk premium at 28 June).
But yes, we're not being compensated very well for having our money at the bank. I wonder how much of this has to do with the FLP still giving banks a source of relatively cheap credit.
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