Term deposit rates are falling, with more cuts announced late this week.
Home loan rates have been falling too, and to a large extent these reductions need to be 'paid for' by lower costs for funds - and about two thirds of those costs come from the cost of customer deposits (but at proportion varies widely between banks).
We have recently assessed how the New Zealand banks treat mortgage customers using the same banks pricing levels in Australia as a benchmark. The conclusion is that on a fully costed basis, Kiwi customers get a better deal than Aussie borrowers.
Now we want to look at the relative situation with term deposits.
And here the news is even better.
Over the past week, banks in Australia have been cutting term deposit rates quite aggressively. And it turns out their reductions are more than their Kiwi cousins have so far applied.
Unlike New Zealand, there is real political and regulator pressure for banks to pass on the full OCR rate cuts. Some have (CBA and NAB) while others have held back of passing on the full cut to borrowers (ANZ and Westpac). These holdouts have been beaten up publicly for their decision, even though the reason they gave is that they were trying to protect savers from the full cut. It seemed to be an argument that got little sympathy in Australia.
In New Zealand, that argument was generally accepted with very little push-back.
The result is that Kiwi term deposit savers are in a far better position than their Aussie counterparts.
So for both mortgages and term deposits, it's Kiwi customers 2, Aussie customers 0.
The mortgage comparisons are here.
And here is the up-to-date term deposit comparison.
| for a $25,000 deposit | Rating | 3/4 | 5/6/7 | 8-11 | 1 | 18 | 2 | 3 |
| mths | mths | mths | yr | mths | yrs | yrs | ||
| New Zealand | % | % | % | % | % | % | % | |
| ANZ | AA- | 2.75 | 3.20 | 3.25 | 3.20 | 3.10 | 3.10 | 3.15 |
| ASB | AA- | 2.65 | 3.05 | 3.00 | 3.00 | 3.00 | 3.00 | 3.00 |
| BNZ | AA- | 2.75 | 3.30 | 3.20 | 3.15 | 3.10 | 3.10 | 3.15 |
| Kiwibank | A | 2.75 | 3.25 | 3.20 | 3.20 | 3.10 | 3.15 | |
| Westpac | AA- | 2.65 | 3.05 | 3.05 | 3.05 | 3.05 | 3.05 | 3.05 |
| ------ | ------ | ------ | ------ | ------ | ------ | ------ | ||
| simple average | 2.71 | 3.16 | 3.16 | 3.12 | 3.06 | 3.07 | 3.10 | |
| Australia | % | % | % | % | % | % | % | |
| ANZ | AA- | 2.10 | 1.90 | 2.35 | 1.95 | 1.95 | 1.95 | 2.00 |
| CBA | AA- | 1.85 | 2.05 | 1.70 | 1.80 | 1.70 | 1.70 | 1.70 |
| NAB | AA- | 2.05 | 1.75 | 1.65 | 1.90 | 1.80 | 1.80 | 1.80 |
| Suncorp | A+ | 2.20 | 2.15 | 2.00 | 2.15 | 2.10 | 2.15 | 2.10 |
| Westpac | AA- | 2.00 | 1.75 | 1.55 | 1.95 | 1.95 | 1.90 | 1.90 |
| ------ | ------ | ------ | ------ | ------ | ------ | ------ | ||
| simple average | 2.04 | 1.92 | 1.85 | 1.95 | 1.90 | 1.90 | 1.90 |
By any measure, New Zealand TD savers are very much better off.
And that is true even after accounting for the difference between the current official benchmark interest rates. In Australia the RBA has its office rate at 1.25%. In New Zealand the RBNZ has theirs at 1.50%.
Apart from three month rates, all other advantages give about a +1.2% premium to New Zealand savers. That is a lot, and much more than we expected to find. That is almost the equivalent of the inflation rate. (In Australia the inflation rate is 1.3% and in New Zealand it is 1.5%.)
In New Zealand the range between the lowest and highest rate is just over +10 bps for the durations six months to three years. In Australia it is +30 bps. But that just means their lows are much lower.
Yes, term deposit rates are low in New Zealand and among our lowest ever. But we do have much to be thankful for as they are not 'impossibly low' as in Australia (that is, well below inflation). Yes, after-tax results will be even lower and make all comparisons less attractive.
Analysts both here and across the ditch expect each country's central bank to cut rates again and quite soon - the RBNZ is next reviewing its benchmark OCR on June 26, and the RBA's next review is on July 2 - so the levels and relationships in the above review will likely change, and lower, over the rest of 2019.
(This is the first time we have done this type of review so we cannot compare changes over time.)
10 Comments
David is there any news on what's happening our Government putting in place a "Saving Protection Compensation Scheme" for NZ savers? I remember that there was discussions about this early this year but haven't heard anything emerge from that? Aren't we the only Western country still not to have this in place for our citizens?
Just there is considerable risk in having your saving locked up in banking term deposits with the current economic climate, considering there is a high risk state and possibly more so if your with an Australian bank here in NZ, since both banking systems have become very dependent on market forces related to property.
And when property markets decline, the risk of banking collapses drastically increases. The UK have increased its Saver Protection Limits up to £85,000 ($165,000 NZD) covering money in current accounts, savings accounts, and cash ISAs. Australian Government has guaranteed deposits up to $250,000 in Authorised Deposit-taking Institutions in Oz. So does NZ have anything in place to protect our savers?
Yes, I thought there was someone re-looking at a deposit insurance scheme. But unless its part of some of this work, it must be informal.
Personally I hope we don't go down this path. It involves an unreconcilable moral hazard, and is really bad public policy (even if savers really like the free lunch at taxpayers expense).
Savers need to realise that if we do get deposit insurance it will come at a measurable cost. Perhaps one way to look at it is to look at how much less Aussie's get for their savings compared with Kiwis. They have deposit insurance and their Government charges the banks for it (plus has added a few other bank-specific taxes over the years 'because they can' and it makes good politics to do so). But clearly these could be a substantial reason for the differences identified in the article. You really want to pay for it that way? Savers are better to go into a deal with their banks with their eyes open, and get the risk premium directly, rather than have it siphoned off in a general 'costing exercise'.
Thanks David, Though I think most of us would be happy with those "measurable cost" to avoid loosing a substantial part if not all of our life savings, it's a bit of a double edged sword and not surprising why everyone here squirrels their savings in to the property market.
So at this point in the game there is no deposit insurance scheme for NZ savers just yet, only on going discussions.
Re; keeping our eyes open with the Banks - See this is what I'm worried about particularly with the recently downgraded Aussie banks who I'm guessing will have no insurance for their NZ bank outlets: Westpac, ANZ, ASB and BNZ. So if they falter in Oz, what's to stop them from letting little NZ to take the hit from their failings. I know our Government has tried to place capital adequacy frameworks for registered banks but really will this be strong enough considering that the Aussie banks and economy are on shaky ground at the moment?
Australia's banks on shaky ground:-
* Housing boom has hit a downturn
* 40% of Aussie mortgages are on interest-only terms.
* Soft leading increasing: The banking regulators have signalled loose lending criteria is on the horizon. As well lowering home loan deposits.
* Top end Chinese buyers have largely gone due to tightening Capital Controls
* The inverted US yield curve signals a likely recession with the US
NZ offers extremely good term deposit rates and if they’d introduce even a low $100,000 insured deposit
system they’d attract even more foreign money
I can’t justify leaving funds in NZ bank deposits unprotected with GFC2 around the corner
NZers seem oblivious to real risk
The Key government removed protection & deposits remain unprotected under this current government
David,
I believe that the Treasury is doing some work on this. I understand the moral hazard issue,but I simply disagree with your conclusion. For one thing,you need to explain how every other developed nation has managed to square that circle. They have the same issue,but have decided that depositor protection trumps the moral hazard argument.
On a practical point,we would not just wake up one day to find that one of our big banks had closed its doors. There would be warning signs,market rumours and that leaves open the possibility/probability? of a bank run,followed by contagion,followed by government panic and blanket guarantee. Deposit insurance would prevent that.
I have raised this issue with quite a few people-some think there actually is such a guarantee in place and cite South Canterbury in evidence and others believe that at the first sign of trouble,the government would cave in.
"By any measure, New Zealand TD savers are very much better off."
They should get higher rates, they're taking more risk.
Whether that makes them "better off" is up for debate.
OBR is explicit here - your deposits are at risk in the event the Bank needs to be recapitalised.
In Australia it is not clear that would be the case and there is strong opposition to it.
Before you put you lock your saving away in to long term investment consider what's happening with the banks, two articles here that will help you weigh up your risks.
Yahoo Finance article: Why the Barefoot Investor thinks the Aussie economy is trash - much like Ireland in 2007
https://au.finance.yahoo.com/news/why-the-barefoot-investor-thinks-the-…
Extra.ie article: Irish Economist Eddie Hobbs says Australian housing market is about to collapse
https://extra.ie/2019/06/11/news/world-news/watch-irish-economist-eddie…
From that second link:
By the time the Irish economist finished his initial analysis, the immediate reaction from one of the Australian hosts was one of dismay.
An Australian host eh? None other than Martin North. A doom and gloom fest from the usual suspects. Why would North be dismayed when he has been predicting this himself for years?
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