With some economists expecting a higher OCR soon, and financial markets responding with higher wholesale rates, savers might be expecting higher term deposit offers as one consequence

Following ANZ's call that we can probably expect two more 25 basis points Official Cash Rate rises, the first being later this month, financial markets have sharply changed their tune and are today are pricing in a 50% chance of that, and another similar chance in May.

Banks can't ignore these changes, even on the term deposit side.

On Monday, BNZ raised its six month rate by five basis points to 6.05%. That matched Kiwibank among its main rivals and they follow Westpac who are now up to 6.10% for eight months.

All this comes as term deposit (TD) savers move away from the very short terms of three months or less. That said, more than a third of their TD balances will roll-over within three months, the largest single block. For terms up to six months, the share has remained stable at about 30%. For terms up to one year, the share has risen relentlessly to its highest since this data series started in 2011, now at 27%. These weightings happened as the total term deposit balances rose to $200 billion, up 17.2% in a year.

With ubiquitous 6% plus rates for the terms where almost all the term deposit rates are concentrated, and with prospects the OCR will rise from here over the next three months, savers could reasonably expect that retail term deposit rates might firm from here. If the present 5.50% OCR actually does become 6% by May, some of this increase could well flow through to retail TD offers, especially by challenger banks.

However, if rate rises also push up short term borrowing rates, the usual extra mortgage demand during the February to Easter real estate selling season could either shift borrowers to longer fixed mortgage terms that don't get this pressure (say three year fixed terms), or it could quell demand for buying houses because of the affordability stress from higher rates. In that case, banks will avoid having to pay extra for deposits because the loan demand isn't there.

A quick check of the swap rate chart below shows how fast wholesale markets are responding. In fact the 38 basis points jump in the past week for the one year swap rate is the largest rise following a long stable or easing period, since 2014.

The latest headline term deposit rate offers are in this table after the recent increases.

for a $25,000 deposit February 12, 2024	Rating	3/4 mths	5 / 6 / 7 mths	8 - 11 mths	1 yr	18mth	2 yrs	3 yrs
Main banks
ANZ	AA-	4.30	6.00	6.00	6.10	6.00	5.75	5.50
	AA-	4.40	6.00	6.10	6.10	5.90	5.65	5.35
	AA-	4.30	6.05 +0.05	6.10	6.10	5.90	5.65 -0.10	5.35 -0.15
	A	4.40	6.05	6.10	6.15		5.70	5.35
	AA-	4.30	6.00	6.10 +0.10	5.90 -0.10	5.80 -0.20	5.50 -0.20	5.30 -0.20
Other banks
Bank of China	A	5.20	6.10	6.20	6.30	6.10	6.10	6.00
China Constr. Bank	A	5.20	5.70	5.80	5.90	5.85	5.65	5.50
Co-operative Bank	BBB	4.20	6.10	6.10	6.15	6.00	5.80	5.55
Heartland Bank	BBB	5.50	6.05	6.15	6.30	6.10	6.10	5.85
ICBC	A	5.00	6.10	6.15	6.15	6.05	6.00	5.55
Kookmin Bank	A	4.40	5.60	5.70	6.00		5.00 -0.20	4.60 -0.60
	A	5.05	6.15	6.20	6.30	6.10	6.10	5.90
	BBB	4.20	6.05	6.15	6.15	6.00	6.00	5.90
	A-	4.25	5.90	5.90	6.00	5.90	5.75	5.50