A 5% offer for a one year term deposit has burst on to the scene for savers, potentially up-ending the current rate cards of other banks. But despite this, TD rates have been rising anyway, and compared to home loan rates, aren't much out of line

All the focus has been on rising home loan rates recently, but term deposit rates have been rising too.

We have previously noted that these are lagging, but two changes from challenger banks on Thursday may entice term deposit investors to take a look at what they are offering with some enthusiasm.

RBNZ data shows that savers do respond to higher term deposit rates, with significant movement out of current account and low-earning savings accounts into term deposits. But what is unclear is whether significant numbers of savers actually switch banks in the hunt for these higher rates. Some obviously so, but it is doubtful that enough savers do to make banks feel like they need to pay more to keep their customers.

Today, SBS Bank has been the first to offer 5% for a one year fixed term. This is well ahead of all their rivals.

It is even ahead of Rabobank who also raised rates today; their new one year rate has become 4.70%, which in the absence of the SBS Bank offer would have been market-leading.

There are other 5% offers in the market. Those are from the Bank of China which offers that rate for terms of four or five years. Rabobank now offers 5% for a five year term. And TSB does too. But with SBS Bank's one year offer, these don't quite have the cache they did yesterday.

All these offers are from challenger banks.

From the main banks, the highest one year rate for a one year term is ASB's and Kiwibank's 4.50%. These are 'good' from a recent history perspective, even among challenger banks. But no longer 'great'.

5% offers for one year are closer now, especially since the ice has now been broken.

You might hope that ANZ's enormous $2.3 bln tax-paid profit would release some payoff for their customers, but that seems unlikely. (Kiwis could be justified for feeling taken advantage of by this result, especially as the RBNZ, which rescued the financial system, is now unable to pay any dividend to Treasury, a key action that enabled ANZ to rake in the excess profits. And the ANZ's profit "rounding error" - the $300 mln of their $2.3 bln - is actually more than double Kiwibank's total annual profit of $131 mln, tax-paid.)

For savers who are reluctant to commit to five year, or even one year, the highest six month term deposit offer at present is China Construction Bank's 4.20%, and the same bank's 4.40% for nine months. Rabobank offers 4.30% now for nine months. Among the main banks it is 3.75% from ASB and Kiwibank, and 4.10% for nine months from ANZ and ASB.

All term deposit rates have risen a lot over the past three months. But they haven't risen quite as fast as home loan rates have done. The gap between the average bank home loan rate for a one year fixed term and a one year term deposit is now 124 bps. Having noted that the average in 2022 so far is 127 bps so it is reducing recently. In 2021 it averaged 134 bps, in 2020 it averaged 104 bps, in 2019 the average was 80 bps, 87 bps in 2018 and 119 bps in 2017. Ten years ago in 2012 the gap was 105 bps. Perhaps you could conclude that there may be 10 bps extra savers are 'short' now, compared to the longer term 10-yr average of a 115 bps gap. Basically the TD pricing levels aren't much out of range than 'normal.

So for higher term deposit rates, we will need higher wholesale rates. Savers should watch out for our bond and swap rate reports to get a sense of where these markets are heading.

And for the record, term deposit rates are still a long way from matching inflation, even further from delivering a 'real' return after taxes. Despite these clear and obvious disadvantages, savers are increasingly motivated by higher term deposit interest rate offers. It is better than not having them if TDs are your thing.

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.

Update: The table below has been updated with some late BNZ and Westpac rate increases.

for a $25,000 deposit October 27, 2022	Rating	3/4 mths	5 / 6 / 7 mths	8 - 11 mths	1 yr	18mth	2 yrs	3 yrs
Main banks
ANZ	AA-	2.50	3.60	4.10	4.30	4.35	4.40	4.45
	AA-	2.50	3.75	4.10	4.50	4.50	4.50	4.50
	AA-	2.50	3.75	4.00	4.50	4.35	4.40	4.45
	A	2.50	3.75	4.00	4.50		4.50	4.35
	AA-	2.50	3.75	4.00	4.50	4.50	4.50	4.50
Other banks
China Constr. Bank	A	3.35	4.20	4.40	4.55	4.55	4.65	4.75
Co-operative Bank	BBB	2.10	3.70	4.00	4.50	4.50	4.65	4.70
Heartland Bank	BBB	3.00	3.60	3.45	4.20	4.00	4.10	4.20
HSBC	AA-	2.30	3.65	4.00	4.30		4.30	4.35
ICBC	A	2.95	3.90	4.35	4.55	4.50	4.60	4.60
	A	2.85	3.95	4.30	4.70	4.65	4.75	4.75
	BBB	2.20	3.60	3.80	5.00	4.40	4.50	4.40
	A-	2.20	3.60	4.00	4.50	4.55	4.60	4.70