Banks toughening rules around making early withdrawals from term deposits

Banks toughening rules around making early withdrawals from term deposits

Those who think a term deposit is a quasi-on-call savings facility need to think again.

The Banking Ombudsman warns banks are cracking down on people wanting to access their term deposits before the maturity date.

From the end of last year, Westpac and BNZ have been requiring their customers to give 32 and 31 days’ written notices before the date they’d like to withdraw their funds.

In other words, customers need to wait at least a month, before they may be eligible to get their money out.

Banking Ombudsman Deborah Battell says other banks are heading the same way, but can’t give any details at this stage.

ANZ says it’s reviewing its term deposit break policy and will communicate any changes to its customers directly.

ASB executive general manager of retail and business banking, Ian Park, says “We are aware of the developments at other banks in New Zealand and we are currently evaluating the impacts on our bank and our customers.

"When we have completed this work we will communicate with our customers to advise of any changes.”

The banks are responding to Australian regulatory requirements designed to prevent another 2008 global financial crisis from happening.

Accordingly, Kiwibank says it isn't considering implementing a notice period, as New Zealand's legislation doesn't require this.

Battell says the changes are designed to improve the resilience of the banking sector.

She points out banks have always had the discretion to decline early withdrawals.

They’ve agreed to allow these withdrawals if they’re satisfied their clients are undergoing a time of hardship. For example, they can’t afford to pay for basic living costs, urgent medical treatment, funeral costs, or costs incurred in a disaster.

Most banks have also always charged fees to those who have broken their deposits, and reduced the interest rates on the funds they’re withdrawing.

They may also recover interest that was paid at the higher rate during the term of the deposit.

This aside, Battell says bank customers are already complaining about the new notice rules.

This is what the Ombudsman says happened to one complainant:

Mr W’s bank informed him it was introducing a new policy that required him to give notice before withdrawing a term deposit early. This policy was to apply to all existing and new term deposits.

Mr W believed the policy shouldn’t apply to existing term deposits, as it was unfair for the bank to change his contract without his permission. As a general rule, a contract cannot be varied without the consent of both parties unless the contract says one party can make changes without the permission of the other.

Mr W’s contract with the bank was the investment statement which said the bank could agree to an early withdrawal or it could decline the request. This term of the contract had not changed. Rather, it was the policy around early withdrawals, in particular the requirement to provide advance notice, that had changed.

We could not therefore uphold the complaint because the bank had not changed the contract.

The Ombudsman has some suggestions to avoid such problems:

• Think of term deposits like a fixed term loan – you are generally agreeing not to break the contract for a specified period of time.
• Try to clearly work out when you are likely to need the funds before fixing the term.
• Check out alternatives to term deposits if you think you may need the funds at short notice.
• Check out your bank’s policy and terms and conditions with respect to breaking term deposits.
• Shop around for the best deal in terms of both rates and policies.

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Being NZ owned, I don't think Kiwibank are contemplating introducing this change....yet

Hi there, thanks for your comment. I just spoke to a representative from Kiwibank, who confirmed the bank isn't considering implementing a notice period, as New Zealand's legislation doesn't require this.

Such assurances are meaningless.  the banks decision makers could be discussing the very issue and decided not to make it publicly available due to commercial sensitivity.  Meaning the representative wouldn't be able to tell you even if they did know.   Or it might have been approved and waiting for reports and guidelines to be draw up so your representative might not be in that loop, so "to the best of their knowledge" the bank isn't doing that but they might well be in the process now.  EVEN if you got it on letterhead signed by that representative the bank could simply say they weren't authorised to give that assurance (not being in the loop and that such information was based on yesterdays policy, bad luck) or that the bank reserves the right to be fluid in its decisions based on market movements.

Unless that rep is willing to _personally_ sign it, WITH idemnity against bad information (for fixed period)  their advice is just "market guidance"  (aka advertising).  


Wow, if its on call however you can just get/move it anytime?
So we are all doing fine, yet we now have an OBR designed for use in extreme situations, Cyprus where they almost didnt honour (or did they?)  the 100k depositor guarantee? and now this. Funny thing but I get the distinct impression that small depositors are being setup/used as a default guarantor while the big boys can or will have run.

yep, I'm just glad I don't have anything in TDs...  time to start spreading cash around the banks...  make the most of any de minimis that comes through from any OBR events...

It's almost as if the incentives punish savers and reward borrowers. No wait, that's exactly what it is.

Yes, but they will kill off the smooth operation of social efficacy embedded in the money intermediation process - politically driven, but nonetheless ill informed bureaucratic intervention never ends well. 

No, incorrect.  There are three classes of people here, savers (me) who have a job and save a %, the saved (OAPs) whos only income is off the capital and borrowers.  The OAPs it seems expect guarantee of no loss, and a high return despite that.  So actual borrowers ie businesses have to take on the risk and the costs of doing business where the saved take on none or little covered by the savers. Frankly I do not consider that a morally justifiable argument.
Low interest means we have a poorly performing economy with low inflation. If you dont like the "safe" payout of a TD go invest where the payout it higher to meet your wants which might well boost the economy in the process.

You forgot the self interest of the legally enabled reserve currency money lenders that NZ banks are heavily reliant upon. Where else to fund the ~140% bank asset to domestic deposit ratio
....the whole misbegotten notion that America’s $17 trillion economy can’t do without cheap and easy debt; and that main street jobs and prosperity require more and more of it each and every quarter.
At the end of the day, it is the false belief in the debt elixir that undergirds the inexhaustible pettifoggery and cowardice displayed by Washington politicians and regulators alike when it comes to fixing the banks.  The latter simply threaten a lenders’ strike, and any resolve to get to the root of the problem promptly dissolves. Read more

Not sure why this is relevent to me as a tax payer covering the moral hazard of a depositor unable or unwilling to do their homework or pay for it. 
If there is indeed an external event that sends us into a second Great Depression expecting an innocent 3rd party to bail you out isnt reasonable because of it.

The banks are over extending the private debts of the nation beyond the level of domestic deposit capacity, thus placing the local depositors into a higher, under rewarded risk profile, given the foreign lenders' funds are US tax payer backed deposits and are exempt from OBR prepositioning due to the execution of cross currency basis swaps undertaken to hedge the risk of foreign currency borrowing. Hence they (foreign banks) are indifferent to risk and lend at ridiculously low rates to our New Zealand banks, which in turn become the domestic benchmark term deposit rates beyond the reach of OCR impact.

IS the money into NZ from those sources free money?  I was under the impression that the government was trying to skim those financial sources (hence the backhanded encouragement of them)

No, that is how the clueless found they lost money all over the place, they just invested in different finance companies who were lending to the same things which all went wrong at teh same time. You spread risk by being in different investment classes. 
Nothing wrong with TDs in terms of an OBR right now as long as you have an exit plan to go somewhere else that can work fast and you keep your eyes open.  The nasty will be an overseas event like a grexit causing the entire banking system to freeze up.

What is the plan you keep referring to for those with less than $millions to efficiently navigate the government TBill market?

Seek professional advice.

As I have said before, stop exercising your mouth above your payscale until you have something of substance to contribute.

Yeah right, panicking are we?
Oh and I dont see why I as a tax payer should be guaranteeing your or anyone else money.

I am just as frustrated funding those wishing to consume today beyond their ability to pay tomorrow for below risk adjusted returns determined by state bureaucrats.

What Steven does not realize is that the whole banking system is a public/private enterprise..
A central Bank is the incestuous bedmate....lying between the private sector and the Banks....  Its first love is too the banks....
Its implicit ... that when the shit hits the fan....  public money will bail out the banking system...It will initially come in the way of liquidity at ultra low interest rates....  ( which is basically a transfer from the privaet sector to the Banks )
Below risk adjusted returns .... is  a part of that system...  I totally get what Stephen is saying.
Steven... u need to do some homework...
The OBR is a bad idea ... in my view...      If one bank fails ALL banks will fail... 
In terms of prudential policly the Reserve bank would have been far better to have legislation passed allowing all bonuses and salaries of Bank Management to be clawed back in the event of bank failure.......     No Bank would fail then.

Spare me the conspiracy theories.
The RBs first love as in legislation is to bank and economic  stability, the side effect may well be "love".
Well I dont agree on the OBR, it breaks the side effect "love" bond, where the RB/Govn is forced to step in. ie it allows the Govn not to have to bail out the banks.
If one bank fails all fail, indeed because they all have a monolithic  risk profile. Hence the OBR allows the Govn not to have to bail them out because they all lent stupidly.
"bonuses and salaries" that is for shareholders to deal with.  If the shareholders are that greedy and self-centred (and they are IMHO), well the OBR exposes them as well and not teh tax payer who is the innocent.

jeez... steven .... what conspiricy theories..???
And u are wrong that the Reserve Banks role is to economic stability..
It is solely mandated to maintain financial stability  and to , supposedly, Monetary stability in maintaining the integrity and purchasing power value of our "money".
Do u think the proceeds of an OBR event can save a bank..??? 
In todays world ...a Central Bank providing "liquidity".... is like a free gift....   In years gone by... providing liquidity would have been punitive.. and a Bank would pay dearly for it.... punished for their transgression.
( The ECB gave/lent out over a trillion euro at .25% to its member banks... that is one hell of a gift )
Thats why I use the metaphor..."lovers"....   Central Banks look after thier loved ones... in todays world of creditism...debt Capitalism... financialization....  whatever label u want to give it.
I wont go on....     I totally agree with S Hulme....    and disagree with u.

The OBR isnt there to save a bank, its to contain losses to within the bank, where it should be kept.
They may well be looking after thier "lovers" then they should be held to account of those taking the loss and not those with the loss getting it covered by an innocent  3rd party.

What you appear to be saying is these 2 guilty parties ie the banks and the Govn are doing wrong to the saved. So you there Mr and Mrs PAYE will be paying to bailout the "saved' because of someone's elses wrong doing.
Personally I think that is as wrong and immoral as the actions fo the bankers and Govn, 2 wrongs does not make a right.
Now if the saved wanted to doing something because they feel they are getting rpped a new one they should a ) be voting with their feet, b) voting out the Govn. They will not however because they want "free" handouts of / when it goes wrong.
So really there are multiples of wrong doing going on and a great deal of lack of self-responsibility.

No point falling back to the "voting out the government".  the others are either of the same coin, or in crazy land (like Labour-Greens, electric car push....we'd all be looking for new batteries about now...);  or todays Labour "jobs for nothing and my money for free

The funding isnt the issue, its the increasing risk and impact. 
Like I said I am a saver, I am paying down debt not taking on more.  I am reducing my risk and impact on myself and indeed you.     Right now as a tax payer I am funding and in effect guaranteeing  the OAP, and public health care no matter my ability to pay (or my childrens)  in the future. So frankly having to guarantee SOME others private pensions in excess of that is not reasonable IMHO.  Especially as it seems those same ppl seem perfectly happy  to play the moral hazard game and not take responsibility for their own capital.  Probably the same ppl who voted to stop funding tertiary education and for tax cuts.  Now sure these are probably not the sharks out there but at the same time willfully ignoring the limits of the planet by avoiding thinking about it and storing up problems for the future is pretty amoral IMHO.
PS No one has the ability tomorrow to pay back this debt, lack of [cheap] oil derived energy guarantees default within 20 years, maybe even 10 because with no oil we wont have an economy like it is now.

What concerns me is that it buggers up the market signals and results in improper observations of market theories.  People are consuming on undervalued risk, performance of the market is being measured on the popularity of credit which functions as introduced currency, but the removal of money is being corporately run (by funds "dying" back to the foreign lenders wallet, rather than back to government, as the corporations are outside the local loop used to count the velocity.  Result is much deeper debt bubble and an unawareness of the collective risk - however should be completely deleveraged by august personally, so Wheeler can put his OBR where the sun shines from...

In terms of investment in Govn bonds,
"Kiwi Bonds
Kiwi Bonds are securities offered by the government to individual New Zealanders.  They are a simple form of investment, similar to a term deposit in that they offer a fixed rate of interest for a given term.  Terms available are six months, one year or two years.  The minimum amount that may be invested is $1,000.

For subscriptions of $1,000 - $500,000



6 months

2.50 percent per annum

1 year

2.75 percent per annum

2 years

3.00 percent per annum

Earthquake Kiwi Bond

4 years

3.50 percent per annum

So if it was me I'd be reading up on the above and then asking a professional to explain what I dont understand or for things not stated ie assumed I should know about. 
I'd look at the 6 bond.
It may well be that this is a bad idea, that is why you go get advice.

The main question I have over those (I've looked at them before) is most of the investing in those bonds is done through the established banks.  And then what happens if that bank goes down if they manage your investing in government bonds?
I also had questions about how easy they are to break as well in terms of an emergency and you need the cash...
These are on my list of things to ask my account manager next time I'm in the bank (which should be in a few weeks)

There are two types of govn debt, kiwibonds limited to 500k for the small investor and then yes you buy Govn debt via the banks/brokers, and yes I doubt its a good idea myself.
"Break" well we were discussing spreading the risk, so I'd assumes that you would have some $ks in oncall, then some in 3 month TD and then some in this (say) 6 month rather than all your eggs in one basket.
"your account manager" is a vested interest, he isnt working for you at all, he's looking to his bonus and then the bank's well being, you come last, maybe.

The banks are normally the repackaging institution for the underlying debt.   check your fine print, and registration and security clauses (if any).

The offered rates are insulting and derisory given the government willingly pays tax exempt foreigners +- 3.40% for TBills - see latest tender.  Even the RBNZ pays 3.50% for banks to park cash in RBNZ Bills up to 1 month periods.

Please explain to me how expecting an innocent 3rd party to cover your loss is moral?
ie you are unhappy that you cannot get the return for the level of risk you preceive is there (and I agree btw) so want to palm that risk to someone else.

I demand that a level playing field is the state of play -  why should foreign lenders and covered bond creditors to our domestic banks put risk levels up and yet avoid the consequences of their returns when wholly innocent and uninformed local depositors (unsecured creditors as well) are legally bound to bail out all the possible failed liabilities (bank assets) created and not just those relating to their individual credits in the event of an insolvency crisis? Read more  Who authorises the RBNZ to choose? Not the taxpaying citizens.

I dont disagree with a level playing field. What I do disagree on is just another tier with in effect you / "the saved" in the middle while tax payers like me are on the bottom paying for you after you have been pillages by the 1% who will get away with it.  At least until the angry lych mob catches up with them.
Lets forget the "un-informed", you are informed, you understand. 
a) if you look at contract law you are as an adult liable for what you sign for once past 18(?) no matter how unfair it turns out to be? pretty sure on that.
b) as per a) You knowingly and openly put your money in a bank, knowing the risks of severe impact and loss are large if not 100% and worse you cannot even claim stupidity.
Despositors are not innocent they are adults in an adult world. They have or should have a self-responsibility, a duty to themselves to look after themselves as much as possible, palming their losses onto someone else is immoral. 
c) legally bound, no, only while you have money in the bank in question, after that you have no legal obligation, except as a tax payer where you have little say, until you vote teh Govn out aka Greece.
"who authroises" well you as the voter blindly voting for decades for a political party (or two) that promised you the un-promisable and un-deliverable. If you and many others had actually exercised your citzenship with due dilegence and looked instead of turning a blind eye for some trinkkets well maybe the outcome would have been somewhat better.

I'm a net borrower - still have a mortgage, but still have an emergency fund sitting in an on call account...  I understand the difference between risk quite well and I know how much (or little) money I have sitting in my accounts at any point in time.  
If I spread my on call account out among five or more banks - I am reasonably confident that the de minimis (as per the OBR) they put in place will protect most of it.  
In the case of a major banking emergency - it also means you could withdraw five (or more) times the daily limit out of ATMs on bank cards in case cash is needed as well...
I increase the amount in our on call/emergency account every month, as well as pay incremental off the mortgage...
Without knowing what particular event is going to drive any collapse - it's hard to plan precisely for what might happen and how to safeguard money and assets.

Jay.  You haven't figured out that in an emergency banks (and ATMs) might freeze immediately.  In ten seconds - no warning.  Unlikely - but you are apparently planning for the unexpected.
There is a reason in many parts of the world that people like gold and jewelry.  If the worst happens, often war or ethnic genocide, you can dig it up and run for the border.  In a way food is even better, but harder to carry in any great value.

I am aware.  I usually have contingency cash for that reason...  but I don't routinely carry thousands of dollers around with me.  
And yes, I also have food rations, water stored, and a portable water purifier (light weight)...  I have enough of these at home for the wife and I to survive for a while without cash.  I figured if the worst comes, I'd rather have water than gold and jewellery - my stomach is a bit sensitive and doesn't like the idea of digesting heavy metals and expensive stones...
And yes, we also have routes planned to get out of the urban areas without using the motorways to "safer" pastures...  
As for the value of food - spices and salt etc are cheap now, but if war or genocide, chaos etc come to fruition - they are lightweight and will be more valuable as people will be after things to flavour their food etc.
Am I paranoid?  Possibly a little bit.  But do I feel better knowing I'm prepared?  Yep.

"am I paranoid" well when the top 1% (or maybe 0.1%) have remote hideaways in quiet  countries that are probably safe for them you have to wonder.  Personally we keep enough to survive an EQ for some time which doubles for other situations.
"spices and salt" yes indeed, some things are usable and tradeable and maybe scarce.  We only make salt in one place in NZ (Grasmere) and that is industrial grade only I believe. 
It could get interesting, to say the least.

If I have 10kilos of food, and its that bad frankly Im not swapping it for some shiney stuff.

how well preserved is that 10kg of food?
I have a whole ex-cow..let the bidding commence.

Well on top of that there is lot of it running around wild from Bunnies upwards staying nice and fresh.

There's some excellent work been done in the last couple of years in aeroponics and micro-hydroponics.  And sub-urbanite (vs apartment dweller) should take a look (google: vertical hydroponic).  Excellent way to get fresh food without the time invested in unmovable soil.

The "problem" with TD's is that you have no control over your risk.
You're relying on the size and pooling to balance out the expertise and marketing of the institution you're saving with.  A TD is just a fixed loan vs a floating loan to the institution.

It will be forced upon the banks, RBNZ has core funding ratio calculations based on the type of deposits a bank has, however if Term Deposits are withdrawable and the bank allows this, then the assumptions underlying the stickiness of that money is no longer valid and the money could leave the bank. Banks will then be unable to class those funds as Term Deposits, but will need to class them as call funds which then will cause the bank to report ratios that may not comply with the RBNZ requirements.

Double post deleted

Given that a Term Deposit is essentially an agreement  to deposit money for a set  time period and in return the owner receives an agreed return, I'm surprised at the umbrage displayed when the "contract" may want to be upheld!
Ultimately is the arguement nugatory and that this change is just putting the "term" back in Term Deposit?   

A lot of the 99% don't want to understand contract, they want to be consumers and the universe owes them.

Cowboy, if I understand correctly, wasn't it you who noted Fonterra failed to pay manual milk prices to dairy farmers in the not too distant past?

By manual do you mean "not by their own rules" ?

I mentioned it because it wasn't popular, and concern over huge capital spending when they couldn't even pay their suppliers the proper amount....

 then the following year couldn't even achieve at market (as the company in charge of marketing and processing) a fair return over proper cost for the product the following year...

while that same company is busy giving away the product for free (with many other giveaways) despite not being able to pay their shareholder-suppliers' properly

while the whole time making up new regulations for the shareholder-supplies...
while not resisting extra foolish and additional expenses imposed unnecessarily from MPI...
while said company isn't even keeping their own house in order...
and so badly screwing up in their recent "oppsie" and admitting they were too badly organised and uncareful as the only reason for the mistake....
...despite such excuses being the epitome of bad business according to the culture* of their biggest customer and place of many huge high risk investments.

Personally I don't mind them not paying full contract for the milk in a boom year.  In fact I find it poor business to do so and a sign of a poor contract that it would demand so (it shows laziness in the assumptions made that WMP will always be a low price, a mistake which could cause commercial pressure if the assumption is incorrect).  It is that they constantly expose themselves to market risk, yet have no resillience or planning to protect their shreholders, and none to protect their suppliers.  This is a big problem towards the suppliers, as the company is the price setter for the suppliers product, so it is farmers businesses that take the risk.   Why is that so evil?  Because the risk is misplaced and it means that Fonterra can constantly underperform, as it can just vary it's raw supplies buy price - passing all market and business risk on to the farmer ... which means the farmers can't progress or assess market demand or needs properly.

True enough, but this does represent a change from the past. Many people will have broken a term dep when a "good deal" has come along. eg A good car has been listed for sale. So it does effectively represent a "non-negotiated" change in terms during the course of a financial transaction.
ie. Kiwibank now has a competitive advantage. It should now "market" this advantage.

It would be best then that people ensure they don't tie all their cash up in fixed terms and keep some in a savings account for immediate needs.  Seriously, if I was thinking of buying a car in the next months, the logic of a long term deposit wouldn't make sense to me.  
Re reading the articler above, there is no change to the "contract"  - the ability to break was at the bank's discretion.  It just seems that  how that discretion is being applied is just being more controlled. 

(Rude first line of comment removed, Ed).
Banks have traditionally been somewhat benign in allowing term deposits to be broken.   And given the easy environment why would they not allow it.
But they have always had the power to deny that possibility if neccessary.  Anybody who thinks that in times of banking crisis that they could break a term deposit when it didn't suit the bank, is dreaming.
Nothing of significance has changed.

Sorry Ed.  My apology.

I can get a similar rate to a term deposit from a serious saver account, if there was a substantial difference then this could be an issue, but there isn't so why the fuss?   Deposits are just liabilities for a bank, which is why you get such ratty interest rates.  They don't exactly need them, but it keeps a relationship intact for when you want to borrow money.