Mother in law's guide: The best deposit rates (Updated)

(Updated September 22. I've changed my recommendations because of a variety of rate changes.) The following article is not financial advice for everyone. However, it is what I'd tell my mother-in-law about where to put any spare money. It is written as my view of the best term deposits and debentures from all those on offer up to 1 year, over 1 year and call accounts. I'd encourage any reader to have a look at these rates tables referred to for a comprehensive view at what's around. Seriously. Don't take my word for it. Everyone is different and has their own needs and risk appetites. This is written for my retired mother in law (and father-in-law) who I want to keep happy, both from a risk and return point of view. They, of course, want the highest return for the lowest risk. I will detail the highs and lows from a risk and return point of view and give my recommendation at the bottom of each section.This website does take advertising from deposit takers and lenders, but this piece is not influenced by that advertising in any way. My inlaw's long term goodwill is more important to me than any advertiser's business and, of course, I value my editorial independence very highly. This post will be updated whenever there are any changes to rates. I haven't recommended any PIE (Portfolio Investment Entity) accounts here because I was too polite to ask my mother-in-law if she was a 33% or 39% taxpayer, which is where these PIE accounts make sense. As she is retired, I assumed she is on a lower rate. However, I will detail the best PIEs below and you can see all the PIE cash accounts offered here. They are worth looking at for 39% taxpayers in particular and the banks are starting to get serious about offering simple ones without fees. They will be huge in the next couple or years, unless a new government gets rid of that nasty 39% tax rate. Enough of the caveats. Best call account (See rates table) The highest call account rate for any amount by a national institution is offered by PSIS, which is a cooperative originally set up for public servants. It's open to all now and is offering 8.4%. PSIS has a BB plus credit rating from Standard and Poor's, which is one notch below investment grade. The absolute highest rate is offered by Taranaki-based TSB Bank. It offers 8.7% for its Premier Cheque account, which requires a minimum of NZ$100,000. TSB was upgraded to an investment grade BBB plus by Standard and Poor's in March from an investment grade BBB. It is registered as a bank and regulated by the Reserve Bank, whereas building societies, credit unions and cooperatives such as CBS and PSIS are not yet. However, the RBNZ will become the regulator of all deposit taking institutions, including finance companies, from late next year. The best call rates currently on offer from a AA (or better) rated bank are from the National Bank and the online bank RaboPlus, the Dutch-owned global bank that is AAA rated (the highest possible rating).   RaboPlus' rate is 8.20% for any sized deposit with no withdrawal restrictions. ASB Bank's FastSaver online account call rate is 8.25% with no minimum, while ANZ's online rate is 8% with a NZ$2,000 minimum. National Bank's best rate is 8% for a NZ$250,000 minimum. BNZ does not have a purely online call account, but it's best rate is 8% for its Total Money account with a minimum NZ$100,000 deposit. Recommendation: RaboPlus is the highest rated bank with almost the best rate online of 8.20%.. ASB is slightly higher at 8.25% and Kiwibank is higher still at 8.30%, but I reckon the 5-10 basis points is more than made up for by the better credit rating. Luckily my mother in law is an online whiz operating her own (part time) business selling antiques and collectibles via TradeMe. But even for relative online newbies, it's a lot easier than it used to be and Rapoplus have a team taking phone calls. Best Deposit Rate up to 1 year (See full rates table) It pays to watch our rates table for this one. Banks offer short term 'specials' all the time and the length of the term is also important depending on your own needs. If you've got a deal to settle in 3 months there's no point in investing in a 6 month term deposit. The best offer from a building society or credit union is Credit Union Taranaki with 9.55% for 9 months with a minimum NZ$500. It has no credit rating. The highest rates offered by AA rated banks are ASB's 8.3% for 6 months and 9 months with a minimum of NZ$10,000 and ANZ's 8.3% for 100 days. Kiwibank also offers 8.3% for 5 months with a NZ$10,000 minimum. National Bank's best rate is 8.2% for a minimum of NZ10,000 for 4 months and where interest is paid on maturity. Westpac's best rate is a special rate of 8.25% for 100 days for a minimum of NZ$10,000 where interest is paid on maturity. The best rates offered by finance companies look very good, but the risk element is crucial here. The highest rate is 10.5% for 9 months from Mutual Finance for a minimum of NZ$1,000 and where interest is paid quarterly. This Pakuranga-based finance company has NZ$15 million in assets, has no credit rating and has more than 80% of its loans in real estate or property development. It's not for my mother-in-law, but others may have stronger stomachs, although I would argue the returns should be much higher than 10.5% to match the risk. Marac Finance has an investment grade credit rating of BBB minus and offers 9.50% for 3 months term deposits with a minimum NZ$1,000 investment. UDC, which is AA rated by Standard and Poor's and is owned by ANZ, offers 8.40% for deposits of over NZ$100,000 for 3 month to 6 month terms. Read the 5 Survivability factors report for more information on finance companies generally. Recommendation: ASB's 8.3% for 9 months is the best around at the moment from a AA rated bank (Aug 12) for up to 12 months. The best shorter term deal is ANZ bank with 8.3% for 100 days. If you think, as most economists and the RBNZ do, that interest rates will fall substantially over the next 6-12 months, then the 9 month deal may be more sensible. My view though is that interest rates may not fall that much because we have an inflation problem that needs fixing with high interest rates and the currency has fallen fast. Best deposit rate for 1 year and over (See full rates table) The outlook for interest rates is a crucial one in this category. If you believe interest rates will fall sharply over the next year or two because the RBNZ will be forced to ease to help the economy then it would make sense to invest for a longer term at the current relatively high rates. If you think interest rates are likely to stay high then you can be more comfortable staying closer to 1 year. Your needs will obviously determine how long you think you can invest for. It makes no sense to invest for 5 years when you may need the money back in two years time. The best longer term rate offered by a AA rated bank is from BNZ, which has a 8.10% special for 18 months for a minimum NZ$10,000 invested and where interest is paid on maturity. This just pips ASB and Kiwibank also on 8.1% but for a shorter 12 months with a minimum NZ$10,000 and interest paid quarterly. National Bank's best rate is 7.8% for 12 months for a NZ$10,000 minimum, but its interest is paid on maturity rather than quarterly. ANZ's best rate is a special 7.80% for a minimum NZ$10,000 for 12 months, while Westpac also has 7.8% for a minimum NZ$10,000 with interest paid at maturity. The highest rate from a credit union is from Credit Union Taranaki at 10.10% for 18 months for a minimum of NZ$1,000 and interest paid quarterly. Credit Union Taranaki does not have a credit rating. The highest rate from a finance company is 13.45% from Asset Finance for four years and five years. It also has a 12.25% special rate for 15 months and a minimum NZ$2,000 invested and with interest paid quarterly. Asset Finance has NZ$25.8 million of lending, almost half of which is to other financiers. Two of its loans are worth more than half its equity. It does not have a credit rating and my mother in law will not be investing in it. The highest rates offered by those finance companies with investment grade credit ratings (UDC, South Canterbury and Marac) include Marac (BBB-minus) on 10.10% for 12 months with interest paid on maturity and a minimum of NZ$1,000 invested. Marac's rate for interest paid on maturity for 18 months is 9.5%. South Canterbury (BBB-minus) is offering 10% on debentures from 18 months to 2 years. UDC's best rate is 8.15% for a one year deposit with interest paid on maturity. Recommendation: BNZ's 18 month rate of 8.10% looks attractive if you want a AA rated investment and you believe interest rates are going to fall. If you're relaxed about slightly more risk, are happy to invest over a much longer term and believe interest rates will fall, then South Canterbury Finance's 10% for two years looks good. Best PIE accounts (See the full table here) Portfolio Investment Entities (PIEs) were dreamt up by the government to make it more attractive for wealthier taxpayers to invest in share market managed funds, which previously were taxed quite heavily relative to property and bank deposits. Banks, however, have worked out they can create PIE qualified managed funds that only invest in bank deposits. These PIE accounts therefore offers a return taxed at 30% rather than the 33% or 39% tax rates for wealthier taxpayers. This means that a PIE account offering 8.85% earns just as much for a 39% taxpayer as a 'regular' account offering 10.15%. In layman's terms this is a no-brainer for a 39% taxpayer as long as the fees and any restrictions aren't too painful. One thing to look for with a PIE is whether it is managed by the a bank or is outsourced to a fund manager. The outsourced ones tend to have expensive fees, typically 0.5%. Cash PIEs also don't allow cash withdrawals from ATMs or branches, but it's usually not too hard to transfer money online to a regular account that does allow withdrawals. ANZ and National Banks offer a PIE that is managed by ING, which is half owned by ANZ. ASB has just launched its own self-managed fund and Westpac offers a fund managed by BT Funds Management, a subsidiary of Westpac. BNZ does not offer a PIE yet. ASB's cash PIE offers 8.25% with no fees and compares well with ANZ's 7.59% with 0.5% fees. Kiwibank's online call bonus PIE offers 8.3% with no fees, while National Bank has 8.10% with 0.5% fees no fees. RaboPlus offers 8.2% with no fees and UDC has its own PIE call account fund of 8.20% with no fees. UDC, however, is the only finance company to have PIE accounts. Southland Building Society and Nelson Building Society have PIEs too. Recommendation. The best cash PIE is from RaboPlus on 8.20%, which has interest that compounds daily while tax is paid annually. The minimum deposit is NZ$250 and there are no fees. The equivalent return for a 39% taxpayer is 9.80%, according to RaboPlus. The best shorter term PIE deposit account is Kiwibank's 5 month PIE at 8.60% or an effective 9.87% for a 39% taxpayer. It also has no fees and interest is paid on maturity. The best longer term PIE is UDC's 12 month Term Maximiser with an 8.20% interest rate or an effective 9.40%.