We all know that mortgage interest rates are higher in New Zealand than many other countries. We compared ours with equivalent Aussie rates here.
We now want to look at rates for term deposit savers - are those higher here as well?
Yes, they are.
And by a substantial margin.
Further, Kiwi term deposit savers are getting a significantly better deal in January 2017 than we got in January 2016 compared with our Aussie cousins.
First up, rates in New Zealand are about 1.25% higher here than across the ditch. And this is true for most popular TD durations.
Secondly, we get a much higher premium to wholesale rates here than in Australia. Our margin-to-swap is basically +1.3% whereas Australian term deposit savers only get about +0.2%.
If you are a saver who feels you have to use bank term deposits, you are much, much better off in New Zealand than Australia.
So you can reasonably argue that the Kiwi premium is for the higher risk in New Zealand.
You many also consider this an indication of what might happen to our retail term deposit interest rates if we also adopted a Government-backed deposit insurance scheme. Would you be happy to pay the cost of that in lower interest rate returns? Of course, anyone asked whether we should have bank deposit insurance will invariably answer 'yes' on the assumption that someone else will be paying. But Australia has one, and while there is no rule that customers should pay, they do. It is a cost to banks, one they recover by offering lower retail interest rates.
|Term deposit interest rates|
|January 4, 2018||6 mths||9 mths||1 year||18 mths||2 years||3 years|
|margin to swap||1.33||1.34||1.32||1.48||1.39||1.32|
|CBA (ASB's parent)||2.05||1.80||2.20||2.30||2.60||2.40|
|NAB (BNZ's parent)||2.05||2.00||2.40||2.60||2.70|
|margin to swap||0.19||0.03||0.30||0.20||0.38||0.23|
|differential in Jan-17||+0.28||+0.13||+0.59||+0.86||+0.89||+0.94|
This analysis also points out that the Kiwi advantage has gotten larger over the past year. We gained relative to the Aussies across all durations, but especially for shorter durations.
Of course, as we saw in the mortgage comparison, borrowers here pay more too:
|November 13, 2017||Floating||1 year||2 years||3 years||4 years||5 years|
But it is clear that the premium savers get in New Zealand is larger than the extra cost that home loan borrowers pay, compared to Australia.
The combination of market forces, regulation, and competitive pressures all work together to give Kiwi's an overall better deal (ignoring the deposit insurance question, of course).
Banks may have gotten a better deal in New Zealand from mortgage payers in 2017, but Kiwi term deposit savers got those gains and a bit more on the other side.