Depositors in last minute scramble to take advantage of high interest rates

Personal Finance / analysis

Households plunged an extra $2 billion into term deposits in July as they sought to take advantage of high interest rates ahead of anticipated reductions in the rates

2nd Sep 24, 11:56am by David Hargreaves

Source: 123rf.com

New Zealand's households plunged an extra $2 billion-plus into term deposits in July as they scrambled to take advantage of still high interest rates ahead of anticipated reductions.

The Reserve Bank set the scene for falls in retail interest rates on July 10 with its 'dovish pivot', while the banks were already moving to lower their rates before that time. However, the rate cuts increased as July wore on and into August and then, obviously with the RBNZ cutting the Official Cash Rate on August 14 this opened the floodgates.

According to RBNZ monthly data, households locked away an additional $2.149 billion in July, which is the biggest monthly increase since June 2023.

Clearly this was a move by depositors to take advantage of high interest rates while they lasted.

As of the end of July, depositors had $136.107 billion stashed away in TDs. That's a record high total and is up by over $17.5 billion (14.8%) in the past 12 months.

Previously, when interest rates were at historic lows, the household amounts being put into TDs had withered, hitting a low point of $80.67 billion in September 2021. Since then an additional $55.5 billion has been stashed into TDs - a 68.7% increase in the amount locked away.

It will be interesting to see what happens to the TD totals in come months as the returns on new deposits decline - and where will the money be redirected?

The $2 billion-plus extra put into TDs in July was part of a big month for household deposits generally. There was a $3.475 billion increase in the total amount in deposits, the biggest monthly increase since December 2021, and taking the overall tally to just under $250 billion.

The annual rate of increase in deposits rose to 6.5%, which was the highest annual rate since November 2022.

Household transaction accounts, which have generally seen declining deposits in recent times, saw an over $1 billion increase in July, the biggest increase since December 2021, and taking the overall total to $38.481 billion.

It would be surprising with how quickly deposit interest rates are now declining if the July figures don't prove to be the high water make for this cycle. But as mentioned above, it raises the obvious question of where money will be re-directed if its not going into bank deposits. We will be watching this space.

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21 Comments

by Zwifter | 2nd Sep 24, 12:16pm 1725236171

Interesting how these articles get next to no comments while another $2 Billion suddenly goes into TD's in a single month. Its like everyone likes to keep it on the down low.

by ChrisOfNoFame | 2nd Sep 24, 12:45pm 1725237939

I used to point out that Kiwis are pretty un-sophisticated investors. I don't now. (Kiwis don't like people like me holding up mirrors for them to see themselves in.)

I also used to point out that money locked away unspent helps to reduce inflation ... while furthering the wealth divide. And when rates start to come down, because it is locked away, can actually delay an economic recovery. And when rates are very low, is more likely to be spent but is not necessarily inflationary if it gets spent on the right things (which it doesn't, see first paragraph).

Did I mention the RBNZ should have reduced the OCR back in Nov '23? Now the RBNZ has the problem that when these TD's mature, they'll have dropped the OCR to near stimulatory levels, and the maturing TD money won't be going back into TDs, but into stagnant assets like houses.

Bust. Boom. Bust. ... ... Here we go again. Worst. Central. Bank. Ever.

by huttman | 2nd Sep 24, 12:59pm 1725238743

the cause of inflation essentially is because supplies of goods and services not catching up with monies in the economy. I suppose the point of increase OCR is to suck cash out of economy.

by alphabeatrium | 2nd Sep 24, 2:43pm 1725244995

Taking money from a TD and putting into houses isn't putting money into a "stagnant asset". Assuming you mean putting money into renovations, that's real quality of life improvements for people, and income for tradies. If you mean new builds, that's building real wealth and easing the housing supply shortage. Neither of those is a "stagnant asset".

by WellingtonInvestor | 2nd Sep 24, 4:07pm 1725250059

Is it creating wealth for NZ? Houses are also depreciating assets, and materials to build or improve them are often imported and or the companies are often overseas owned so profits go offshore.

by Palmtree08 | 2nd Sep 24, 6:00pm 1725256830

Next time my house needs a reno I'll be conflicted whether I should improve its livability, or send the the 85% of cash not already grabbed, directly to NZ inc.

by Palmtree08 | 2nd Sep 24, 5:54pm 1725256470

Ahhh, I remember the good old days when saving money was considered a virtue, not apparently, a vice. Now savers are expected to subsidise borrowers/spenders with interest rates that trash their nest egg, as inflation eats their lunch.

by Let me be Frank | 2nd Sep 24, 6:14pm 1725257645

It aint 'locked away'..it is reinvested

by J.C. | 2nd Sep 24, 1:05pm 1725239153

You're welcome to share your wisdom on the motivations and behaviors behind this Z. It's possible to draw a few inferences. 2/3 of bank account holders barely have two sticks to rub together and <10% have any substantial savings in cash (>$100K). So assuming that the 'high net worth in cash' segment is saving, not a particularly good sign that high-end consumption occasions are going to be common.

by RookieInvestor | 2nd Sep 24, 1:32pm 1725240767

because it indicates a recovery, via lower interest rates, people here aren't interested.

by Independent_Observer | 2nd Sep 24, 3:13pm 1725246815

If the economy was ‘in a recovery’ there would be no need to drop interest rates. Interest rates are being dropped because the economy is doing the opposite of recovering right now. It now s%^ts itself for 12-24 months before the ‘recovery’.

by Let me be Frank | 2nd Sep 24, 6:33pm 1725258809

It indicates no expectation of a superior return elsewhere

by ChrisOfNoFame | 2nd Sep 24, 12:31pm 1725237071

What if that money was invested in overseas markets instead? What then for NZ Inc.

by Eschaton | 2nd Sep 24, 4:44pm 1725252264

Exsisting shares or bonds? Who owns most of that now?

by Retired-Poppy | 2nd Sep 24, 1:22pm 1725240175

It will be interesting to see what happens to the TD totals in come months as the returns on new deposits decline - and where will the money be redirected?

In these increasingly uncertain times, if enough believe by holding off the big purchases, it will only be cheaper tomorrow, deposits might well continue to increase and not be redirected at all. When deposit funds are pouring into banks and not being on-lent, its not a healthy indicator with consumer confidence to buy with borrowed money either. Given time this will change and instead of increased job losses being reported, the opposite will occur and more prosperous times will slowly return.

by Uninterested | 2nd Sep 24, 12:51pm 1725238270

And Kiwisaver cash fund performance will drop from here....

by ChrisOfNoFame | 2nd Sep 24, 3:49pm 1725248977

Not necessarily.

Many 'cash funds' invest in bonds. As interest rates fall, those that purchased bonds previously, at higher interest rates, will be able to sell their bonds for more than they originally paid for them.

Shrewd bond buyers aren't there just for the interest - there's capital gains to be had in them too.

And let's not forget that many bonds are for longer periods than TDs, e.g. 10 years or more. And they just keep on paying out at the coupon rate while shorter term rates fall and bounce all the time.

by ACB | 2nd Sep 24, 4:26pm 1725251204

They shouldn't be termed as cash funds if they have material duration positions.

by Justa comment | 2nd Sep 24, 7:33pm 1725262429

Yes the banks have been very quick to pull the 5 yr TD from 5.5% to 4.5% or less (WBC 4.3%).

by KH | 3rd Sep 24, 9:11am 1725311500

Interesting tone of comments. Seems some are uncomfortable with those who have "money in the bank"

As a nation we have a debt culture. We have not worked out that the real benefit flows to the owner.

As for TDs, it means there are enough people who understand the benefits of being on the positive side. The benefits of having no debt. And TDs are one useful tool as part of that.

by Mystery | 5th Sep 24, 2:01am 1725458494

$136.107 billion in TDs, that's a lot of 'house deposits' waiting for the "right time".

Knowing how obsessed Kiwis are with buying real estate I will not be surprised if the lion's share of that savings 'stash' will be spent on buying houses from each other.