Some banks are trimming term deposit rates, others offering attractive 'specials'. But the immediate trend is for lower rate offers, hurt by diving wholesale swap rates

We have previously noted that it is a nervous time for term deposit investors; the wholesale rate floor is moving down putting today's low retail offer rates at risk.

But it is also a nervous time for bankers as well. Margins are said to be under pressure especially in Australia and the choice is either to raise rates for borrowers (Westpac AU's choice), or lower them for savers.

The pressure is not as intense in New Zealand - in fact, the latest RBNZ Dashboard data shows little threat to current margins. (See the NIM data P3, here.)

But over the past two days, wholesale swap rates have tumbled as business confidence seem to be leaking away.

Lower business confidence means lower business investment, resulting in lower loan demand on banks, and a lower need for banks to compete for term deposit funds.

In this scenario, it seems unlikely banks will try raising mortgage rates to bolster any margin pressure they may feel (or to subsidise their struggling Aussie parents). The signs are that this years Spring real estate selling season won't be breaking any records, and in fact could be quite average.

So the risk goes back on term deposit savers.

Today (Friday), TSB has trimmed a range of term deposit rates from three months to five years, taking -5 to -15 bps off selected offers.

Earlier in the week, Kiwibank has taken -5 to -10 bps off a smaller set of rates.

And non-bank NZCU Baywide, a [surprisingly large] credit union also trimmed -5 to -15 bps from its competitive rate offer.

But not all changes have been reductions. SBS Bank added +25 bps to its nine month special offer, taking it to an impressive 3.65%. This is the highest in the market for this term; in fact it is higher than any bank offer for a full 12 months.

Take a look at the latest swap rate charts; it will make unsettling reading if you are a term deposit saver. It might raise the idea that locking in current rates for slightly longer terms is something worth seriously considering. No-one really knows where retail rates are headed, nor can predict the availability of pop-up specials that can be taken advantage of. But until the private sector starts increasing its local business investment it seems likely that savers will be in for a chilly Spring.

These changes mean that for any term deposit offer starting with a four will require investors to consider locking up their funds for five years. It is a choice few make.

PIE rates can give a small boost to pre-tax return equivalents.

Using our deposit calculator to figure exactly how much benefit each option is worth you can assess the value of more or less frequent interest payment terms, and the PIE products, comparing two situations side by side.

All carded, or advertised, term deposit rates for all financial institutions for terms of less than one year are here, and for terms of one-to-five years are here.

Term PIE rates are here.

The latest headline rate offers are in this table. 

for a $25,000 deposit Rating 3/4 mths 5/6/7 mths 8/9 mths 1 yr 18 mths 2 yrs 3 yrs
Main banks                
AA- 3.00 3.25 3.45 3.40 3.55 3.65 3.80
ASB AA- 3.00 3.25 3.40 3.45 3.55 3.65 3.80
AA- 2.90 3.25 3.25 3.40 3.45 3.50 3.65
Kiwibank A 2.95 3.40 3.35 3.45   3.65 3.80
Westpac AA- 2.95 3.25 3.30 3.45 3.45 3.50 3.65
Other banks                
BBB 2.95 3.25 3.35 3.40 3.50 3.60 3.70
Heartland Bank BBB 3.10 3.45 3.60 3.60 3.70 3.80 3.85
HSBC Premier AA- 2.60 2.90 2.90 2.90   2.90 3.00
ICBC A 2.95 3.25 3.55 3.35 3.75 3.85 3.95
RaboDirect A 2.80 3.30 3.30 3.35 3.65 3.80 3.90
RaboDirect BBB   3.30 3.65 3.45 3.60 3.70 3.90
A- 2.90 3.15 3.20 3.25 3.45 3.60 3.70
Selected fincos                
Liberty Finance BBB- 3.60 3.95 4.25 4.30 4.35 4.40 4.45
UDC BBB 2.85 3.35 3.50 3.60 3.60 3.75 3.75

Rates in this table are the highest offered by each institution for the terms listed. You however will need to check how often interest is credited or paid. That important factor is not filtered in the above table and rates with various interest payment/credit arrangements are mixed here. However, our full tables do disclose the offer basis.

Our unique term deposit calculator can help quantify what each offer will net you.

Term deposit rates

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13 Comments

Finanical repression marching to its own beat

I've got my aussie house savings term deposit maturing in a year. I plan to buy in 2 years. With these rates, I might end up just putting them in a savings account.

Another factor in Australia is a lower household savings rate meaning the Australian banks are having to source more of their funding from offshore wholesale markets.

Why pay to house depositors hard earned when you can push some buttons and create money to lend out of thin air (from the central bank) for essentially nothing. Whats the unproductive part of the economy again...oh yeah its magically crated money warping the value of normal investments for the sake of record profits at banks.

On paper seems like some sort of global scam. Who actually owns the banking system again?

(edited)

Please be careful about perpetuating a complete myth - that a bank can "create money out of thin air". It is the structure of the banking system that creates money, but no one individual bank can do that by "just pushing buttons". It doesn't happen, in fact it can't happen. There are rules and banks would lose their license if they tried it (and just like any other business or family, it would only work so long as the 'creation' never went outside their closed system - which would be impossible for a trading bank).

Before making stuff up, please read this. Yes, the banks create credit in the economy through the banking system, but each bank doesn't in of itself.

Thanks David. The myth that banks create funds to loan out of free air is up there with the Illuminati, flat earth, fake lunar landings and 911 conspiracies. Get a bank balance sheet off the RBNZ website if you don’t believe David.

This is simply not true, you reference the federal reserve fractional banking system which we don't have in NZ.
by Stephen Hulme | Thu, 09/11/2017 - 18:50
up4
You are not missing anything. The referenced article assumes New Zealand operates a fractional reserve money multiplier facility similar to the US, which by the way has been moribund for decades.There is no evidence of vault cash or borrowed reserves of the magnitude potentially required (10%) registered on any published RBNZ ledger.

RBNZ S10 declares a minuscule bank wide $667 million cash and notes asset ledger to theoretically reserve $421,287 million loans and advances - 0.1583%.

But I must point out you are noting bank regulatory capital leverage via RWA, which is maintained against assets for financial "stability" purposes. Banks moved on and no longer leverage cash using a fixed 10% retention level/multiplier to create liabilities. That function has been superseded by the model Peri kindly linked - read more

by Peri | Thu, 09/11/2017 - 17:34
up5
David, you often reference this 2008 note RBNZ, but it is based on a fractional reserve perspective: - there are now numerous recent papers which better describe the money creation potential of banks (such as from
Deutsche Bundesbank April 2017: “ The role of banks, non-banks and the central bank in the money creation process, and
Bank of England, Monetary Analysis Directorate "Money creation in the modern economy")
These papers show the potential for money creation to be much less benign than the RBNZ portrays.

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by JB | Fri, 10/11/2017 - 07:08
up0
Thank you David for explaining so well what is sadly a very common misconception.

As Mark Twain said " It ain't what we know but what we know that ain't so "

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by Stephen Hulme | Fri, 10/11/2017 - 09:26
up2
You may wish to consider the words of a former RBNZ economist before you embarrass your self further.

Mitchell has it in for mainstream academic economics. Quite probably there is something in what he says about that. Between the sort of internal incentives (“groupthink”) that shape any discipline, and the inevitable simplifications that teaching and textbooks require, it seems highly likely there is room for improvement. If textbooks are, for example, really still teaching the money multiplier as the dominant approach to money, so much the worse for them. But as I pointed out to him, that was his problem (as an academic working among academics): I wasn’t aware of any floating exchange rate central banks that worked on any basis other than that, for the banking system as a whole, credit and deposits are created simultaneously. He quoted the Bank of England to that effect: I matched him with the Reserve Bank of New Zealand. Read more

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https://www.interest.co.nz/opinion/89055/former-rbnz-economist-michael-r...

I do miss Stephen Hulme's contributions here.

David - the problem is that since they abandoned the gold standard (which was an indication the system was outgrowing the physical planet, if you had the right kind of eyes to see it) the backing for the fraction is always a matter of mass confidence.

And it's only a fraction. The rest is from thin air, again all a matter of confidence. On a finite planet, it goes close to looking like a ponzi - I can only see massive inflation, massive debt-forgiveness or collapse as the options.

Who actually owns the banking system again? Some "people" in NYC?

Just what I was going to say. Thanks David.

As always, the banks are in it for themselves. They are "profit maximisers" in the classical sense.

Depositors have been getting a very raw deal over the last three years - and it's getting worse for them.

I feel especially sorry for the retired/elderly who rely on interest from term deposits for their livelihood.

TTP

TTP, trust me, those who enjoy the financial freedoms you can only dream of don't need pity - lol!