New Zealand remains a better place to save than Australia via a term deposit, with our interest rates higher. But the advantages may ease back in 2024

Savers who use term deposits are still better off in New Zealand than Australia, but the advantage is slimming for some terms compared to our January 2023 review.

The advantage for key terms remains substantial however, more than enough to account for the exchange rate.

A NZ term deposit (TD) at one of the main NZ banks currently returns about 6.00% pa for six months and 6.10% for one year. At the same banks in Australia these returns are 4.15% and 5.03% pa, respectively.

That means a six month TD here gives 46% more pre-tax interest to its Kiwi saver. A one year TD gives 21% more. This is because NZ banks have pushed their ~6% offers down to the six month term range whereas that hasn't happened in Australia yet. For a one year TD the Aussies are still only offering about 5% pa.

Some of this may be 'explained' by the central bank benchmark rate standards. In NZ it is 5.50%, whereas the equivalent Reserve Bank of Australia official cash rate (OCR) is 4.35%. That's a 115 basis points difference. NZ savers on a six month TD get a 50 basis points premium over the OCR, whereas the equivalent Aussie saver gets a 35 basis points discount. For a one year term, the Kiwi premium is 60 basis points, but the Aussie saver catches up with a 68 basis points premium.

Another reason Aussies have lower rates is their bank accounts are guaranteed by the Australian Government. That is coming in NZ, at a lower level, but still isn't here yet. So the Kiwi advantage is probably explained by the risk premium involved. But that may well slide when we do get our government guarantee, firstly because banks will be charged a fee for the guarantee (and customers will pay), and then risks will reduce for savers so the risk premium will come down.

Yet another reason Aussie savers get less may also have to do with the Federal Bank Levy - and it is probably fair to assume that is being passed on in lower offer rates. (It certainly hasn't inhibited bank profits, even though they paid AU$1.55 billion in 2023 for that special tax.

Here is a workup of how term deposit rates compare currently between unguaranteed New Zealand, and guaranteed Australia.

A close reading of this table shows the advantages Kiwi savers have of Aussie savers is generally reducing. With the guarantee in place it will probably reduce further.

Recall, we do have risk-free term deposits available now in the Treasury's Kiwi Bond offers. These are currently priced like this:

Readers will notice that Kiwi Bond rates are actually higher than Australian bank guaranteed rates. (The Australian Government risk-free involves a credit rating of AAA, one notch higher than New Zealand).

Part of this shift is because depositors will essentially get a AA+ credit rating on their New Zealand government deposits. That is a two step upgrade from the main bank ratings at present. But the Government guarantee puts the taxpayers on the hook for any bank failure to the advantage of savers, essentially socialising the risk of any losses.