ANZ has plumbed new depths with its revised term deposit offers.
It is not 'news' that term deposit rates are falling now. But it is 'news' that ANZ has cut so hard. They are setting a standard for other banks, daring them to follow.
All banks are under margin pressure, abetted by sharp cuts in mortgage rates which have been partly motivated by Reserve Bank calls to "pass on the savings to borrowers."
But up until now, banks have worked to share the reductions between their borrowing clients and their saving depositors. However, ANZ seems to have decided that their savers will stay with them no matter how low their interest rate offers go.
Today, (Tuesday) they have chopped up to -40 basis points from their term deposit rate card offers. Most rates have been cut by -30 bps, some more. And that has left them with an offer card where every rate bar their five year rate is below 2%.
The core six and 12 month offers from ANZ are now 1.85%. And for borrowers on a marginal tax rate of 17.5%, that means a net return of just over 1.5% pa and well below inflation. For savers with a 30% marginal tax rate, it is an even lower 1.3% pa. These are unprecedentedly low rates.
The big question is, will savers retaliate and shift their accounts to others?
History suggests their clients will remain lazy and just accept lower rates, thinking "well, by the time I organise a shift the others will have moved lower too."
But the differences now are not insignificant. There is +30 bps in it between ANZ now and Kiwibank, +25 bps between ANZ and BNZ. (And this is after BNZ has just made some cuts of its own).
There is more in the table comparing offers across the banks. For a six month term deposit at Rabobank or TSB, as examples, there is now a +50 bps benefit by not being with ANZ.
On easy way to work out how much extra you can earn by switching is to use our full function deposit calculator. That will not only give you an after-tax result, you can tweak it for the added benefits of Term PIEs as well. It is better you have that extra interest than the bank.
The latest headline rate offers are in this table and the markings are for changes this week so far.
| for a $25,000 deposit | Rating | 3/4 mths | 5 / 6 / 7 mths |
8 - 11 mths |
1 yr | 18mths | 2 yrs | 3 yrs |
| Main banks | ||||||||
| ANZ | AA- | 1.35
 |
1.85
|
1.85
|
1.85
|
1.85
|
1.85
|
1.90
|
 |
AA- | 1.50 | 2.10 | 2.10 | 2.10 | 2.10 | 2.10 | 2.10 |
 |
AA- | 1.40
|
2.05
|
2.10
|
2.15
|
2.25
|
2.20
|
2.20
|
| Kiwibank | A | 1.55 | 2.15 | 2.15 | 2.15 | 2.20 | 2.25 | |
 |
AA- | 1.50 | 2.00 | 2.00 | 2.00 | 2.05 | 2.10 | 2.15 |
| Other banks | ||||||||
| Co-operative Bank | BBB | 1.45 | 2.05 | 2.10 | 1.95 | 2.20 | 2.30 | 2.35 |
 |
BBB | 1.75
|
2.25
|
2.35
|
2.30
|
2.35
|
2.35
|
2.35
|
| HSBC Premier | AA- | 1.20 | 1.45 | 1.45 | 1.45 | 1.60 | 1.60 | |
| ICBC | A | 1.85 | 2.50 | 2.40 | 2.40 | 2.40 | 2.40 | 2.40 |
 |
A | 2.00 | 2.35 | 2.35 | 2.35 | 2.35 | 2.40 | 2.40 |
 |
BBB | 1.65 | 2.15 | 2.15 | 2.20 | 2.20 | 2.20 | 2.20 |
 |
A- | 1.80 | 2.30 | 2.35 | 2.25 | 2.25 | 2.30 | 2.30 |
Term deposit rates
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60 Comments
What I suggest now is that for those with large bank deposits of say over $1 million dollars start asking for special Term Deposit rates or they will pull their money out and take it elsewhere. I'm reading here that quite a few are currently "Cashed up" so there must be some pretty big chunks of change floating about waiting for the property prices to fall. One of the banks if they are smart enough will keep their rate up and suck in all the liquidity from the other banks.
15 years ago, that $1 Mio bank Term Deposit returned it's owner $100,000 in gross interest. With that, they went out spending - on cars, consumables, holidays and, yes, even a deposit on another rental property.
Today, at $20,000, the owner will clutch what income they get from their money on deposit to their chests; shrink their spending and use what items they already have.
Guess what's going to happen to the economy?
"Grow" isn't the answer.
The lower rates go, the slower the economy will turn, the lower rates will go.....Lunacy.
It is also not sending a good example to children to save. With no deposit guarantee in place, and the future planned deposit guarantee scheme was only apparently going to be 50k per bank anyway, the risk / reward imo of having money tied up in a term deposit is not great. As a saver, you would expect that lower term despite mean lower risk, but the risk as far as I am aware is unchanged, except we are apparently heading into one of the worst recessions in a hundred years. I think the government are going to have to bring in a DP guarantee of at least 250k per bank or higher to cover the reward / risk and to prevent a run on banks if conditions worsen. What if all savers were to just withdraw their money out of protest, and buy government kiwi bonds or hold cash?
I think you possibly overestimate the number of millionaires there are in NZ, and how many of those then also heavily rely on interest repayments for their spending power. I'd imagine there are significantly less than mortgage holders who get new spending power with each lower mortgage rate (I know, I'm one of them). If you haven't diversified by now and relied on TD, well, I would have to say that's rather short sighted given historic trends...
Was thinking along similar lines myself the other day, when I suggested a Bank Depositors Union as a solution. If everyone opened accounts in each of the big four banks, you could coordinate transferring the savings balances between banks to force a bank to raise it's rates. Force the banks to compete on deposit interest rates. With a decent coverage among savers you could butt up against banks capital adequacy buffers pretty easily I reckon.
Your idea is certainly quite appealing, but I think the most effective way is still to take money out of the NZ banks, starting with the likes of ANZ. This is what I have started doing in the last couple of months. 1.85% p.a. gross for a deposit with no deposit guarantee ? No thanks.
Only fools or lazy investors would be prepared to subscribe to bank deposit with such returns. Let the NZ banks go and beg the RBNZ for funds, once the depositors funds start drying up.
I invite all depositors to do this collectively, and then let's see if rates stay low.
While I'm sure your idea has broad appeal to the anti-bank cohort, it will never work. The RBNZ and local banks balance the system every morning for the previous day, they lend surplus funds to each other. Nor does depositing with a single bank make a jot of difference. A foreign bank would fill up on deposits very quickly at which point the small bank would cut deposit rates to zero rather than lend to the big 4 at 0% in the morning. I've simplified this before anyone chimes.
I strongly disagree. I am still completely convinced that it is the interest of the individual depositor to take out funds of NZ banks and invest overseas in countries that at least provide some form of deposit guarantee. Slightly lower rates, but at least the money is secured.
Therefore you get the following benefits:
- funds protection with deposit guarantee
- diversify away from NZ banks
- diversify away from the NZ dollar
Moreover, the NZ banks still have to satisfy a minimum core funding ratio to respect. By the way, everybody knows that international money can be very fickle - once the mood changes, international money can become predatory almost overnight. The GFC should have taught something.
I strongly invite everybody to seriously look at this option. Not for "anti-banking" sentiment, but simply for self-interest.
What do you disagree about? You can move your deposit of course, but there are technical aspects to the banking system that means that money will always end up back with whoever needs it. I'm not going to explain the technical details to you. Answer me this, if you invest overseas what happens? You have to sell NZ$ and buy X currency. You can do whatever you want with X$ but the NZ$ you sold will find it's way to an NZ bank one way or another.
In the normal course, of action, money normally ends up wherever it is needed, this is obvious, but the question is at what terms. There is a reason for the existence of the Core Funding Ratio.
In any case, this does not matter a iota to the individual investor: it is actually interest of the individual investor to invest money where it is "safer", or more precisely better where the rate of return best reflects the risk taken by investing such money.
It is abundantly clear that at the current rates there is no case for keeping deposits in NZ banks: who in his/her right mind would accept 1.85% p.a. gross with the theoretical prospect of OBR (which, in layman speak, only means: "look, you are just an unsecured creditor, and if things go wrong you are going to get screwed, just after the shareholders and bondholders).
Yes funding ratio's do matter of course - but TD's are expensive funding and banks do not want more then they need, so they will move depo pricing back once they are full as it will crowd out cheaper funding. Remember, if a bank is in excess in it;s exchange settlement account, it has to lend it overnight to another bank at 0.25%
Why did the RBNZ cut the core funding ratio from 75% to 50%?
Core funding defined by RBNZ:
New Zealand-incorporated registered banks are also subject to a minimum core funding ratio (CFR). The basic notion underlying the CFR is a comparison between an estimate of the funding of the bank that is stable and can be assumed to stay in place for at least one year (‘core funding'), and the core lending business of the bank that needs to be funded on a continuing basis. Core funding is defined as retail deposits plus wholesale funding with maturity of more than one year.
I see Kauri issuance, the NZD counterparty hedge (XCCY basis swaps) to NZ bank foreign borrowing, is up to $600 million recently, according to Kanga News.
http://www.kanganews.com/news/11765-rentenbank-prices-new-nz-300-millio…
http://www.kanganews.com/news/11750-adb-prints-a-300-million-january-20…
Are NZ banks about to expose themselves to wholesale funding rollover risk, as experienced in 2008, for a few basis points? Or are we talking about serious cost reductions together with off-balance capital exemptions?
Foreign banks are certainly getting a credit creation stimulus injection from NZ bank funding demands, but how do credit impaired, potential Kiwi borrowers who don't qualify for loans benefit?
I agree. TD's are expensive funding for the banks. The interesting thing is what will happen once the unemployment rate reaches 10%, house prices decrease by 20% (and leave a not-negligible part of the borrowers's base in negative equity), confidence in the NZ banking system tanks, and international money flows dry up. A recent report found 34% of households were in financial difficulty and a further 40% at risk of tipping into hardship: https://thespinoff.co.nz/business/27-05-2020/financial-hardship-a-reali….
I think most commentators would be surprised by how quickly the traditional stickiness of NZ depositors gets "unglued", especially with such low rates. The lower the rate, the higher the risk The problem is that, when this happens, there is going to be very few people ready to take risks with the NZ banks even with higher interest rates (unless of course the Government intervenes with an emergency deposit guarantee like it did after the GFC - but I would not count on this).
Yes, currently the NZ banks are still highly rated (if somebody is ready to still accept the judgment of the main rating agencies, or believe the current pricing structure associated with such risks), however not many have noted that, in April, Fitch downgraded all major NZ banks by one notch, also giving new ratings a negative outlook.
We should not forget what happened to all those "safe" triple-A rated securities in 2007/2008. As an example, rating agencies lowered the credit ratings on $1.9 TRILLION in mortgage backed securities from September 2007 to April 2008. Solid as houses ? Yeah right.
Yes, banks are a different thing but we should not forget that ratings and financial stability are a dynamic aspect that can change quite abruptly. And once this happens, many depositors will sorely regret trusting the banks with their deposits for a pittance return that only expresses a bad mispricing of risks, and with no deposit guarantee.
It is a complete mis-pricing of risk: it is like playing poker with somebody who keeps cheating with marked cards. Only fools keep playing it. Mis-pricing of risk was one of the main reasons behind the GFC - with this current suicidal course of action by the RBNZ, we are getting right into it. Just take a look at current bond markets - they have been killed or made virtually meaningless by Central Bank interventions, and NZ is not going to be an exception.
Its in my experience that people with semi large cash deposits (200,000 - to 1,000,000) and have a history of investing that in TD's are very lazy. For them "looking hard for the best rate" means calling the big four and maybe one small other bank asking a very well thought out astute question: " whats your best rate for 6 months". (Source, 10 years+ banking industry)
Myself, and a few people I know, have funds with several banks, simply for diversification purposes.
I have currently funds with 7 NZ banks. TD's are approximately 25% of my total savings.
It takes a few seconds to take a look at the rates table in Interest.co.nz, and determine where to transfer the funds in order to get the best rate.
It takes then a couple of minutes, and 2 hours leadtime, to have the funds transferred. You do not need to ask anything unless you want to get a specially negotiated rate, and in any case you need only one such call with the bank already offering the best carded rate, if you are really lazy and you can't be bothered with more serious action.
But on one thing I do agree: many depositors are lazy, and this is why banks are getting away with such low rates. This is why I have been saying all along that it is time for depositors to change their attitudes and approach to the whole issue of investment. Too many depositors are very passive and some of them even have money only in one bank.
I think the only drawback is for FHB.
They would be the only group I can think of that would have relatively large deposits left with a bank.
They probably aren't "lazy" investors, it's probably more to do with gaining "favourable " terms for their eventual mortgage. Showing regular savings and the like.
Trouble is, such low interest rates, and well publicised facts about deposit guarantees, with little certainty regards alternatives, they are being compelled to put their deposit into a property ASAP.
Would probably work for a few days. Then the laws around the banks capital adequacy buffers would just disappear like they never existed. You would end up with a less stable financial system, but that doesn't matter (don't tell the RB), the only thing that matters is that the banks can keep lending to "businesses" (oh, by the way property speculators are now businesses duh).
I view this as actively discouraging saving. In the meantime Stuff are reporting that Muller is looking/talking about raising the retirement age, and the affordability of the pension. Once again the ordinary folk are being lined up to be shafted by the politicians, who by the way, have a retirement package that is beyond gold plated and no other Kiwi can get. Widely acknowledged that we are a low wage economy, with exorbitant living (accommodation) costs and they still somehow expect us to be able to save for our retirement. This is just so much bullshit!
Yes and in the meantime they're talking about driving ordinary folk down into a poverty trap and dependency. It is unconscionable and deceitful. What is worse there are a number of people who contribute to this forum who willingly buy into the Government dialogue. Do you see that the people who talk the loudest in favour of these moves are the one who have spent a lifetime in high paying jobs, well ahead of the curve, and who have been able to save and invest to have a nice nest egg? The rest of us have little choice, and bugger all to fall back on. A COVID is going to make it significantly worse for an awful lot of us.
I remain hopeful that JA and GR's 'reset' actually has something of substance to address the equity gap.
I tend to agree with you that the system is skewed as you describe, towards debt and investment and I also sympathise because I started with very little.
What I can say though is that the vast majority of commentators here rage against the system, want to change it, want a revolution, where I was smart
enough to swim downstream. It can be done and trust me, I had no one offering me a ladder up.
Yes, I'm nearing retirement age myself and have a small amount saved, but no where near enough to live on, so thie framework he is talking about won't impact me, but it will impact others coming after and I feel for them. Unless they are very lucky in their career selection and pay rates, they too will not be in a good position to enjoy retirement like many now. This is just more of people seeing themselves as elites making decisions that they are not impacted by the consequences of, and using big words to justify it. But anyone with a brain cell to call their own can see that it is just more BS as another generation of pollies shaft the proles!
Global employment conditions now and prior to Covid preclude such outcomes - interest rates would have to be decidedly higher and disinflation not in evidence - Current DM sovereign bond market yields price the opposite.
Markit’s US composite index jumped from 27.0 to 36.4, while Europe’s up from 13.6 to 30.5. Those numbers seem impressive but were actually still what had previously (before April) been record lows.
Beginning with the American figures:
Reflecting the further severe drop in new business, firms cut workforce numbers at a marked pace in May. The rate of job losses eased from April, but was nonetheless the second-fastest in the 11-year survey history. Manufacturers and service providers recorded similar rates of decline as a lack of new work led to increased reports of lay-offs and lower working hours. Subsequently, spare capacity rose and backlogs of work continued to fall.
And now Europe:
Jobs consequently continued to be cut at a rate unprecedented prior to the COVID-19 lockdowns, the rate of staff cuts easing only modestly compared to April’s record. Similar rates of job shedding were seen in services and manufacturing, as firms in both sectors sought to cut capacity in line with weaker demand. Link
Don't worry, as usual the boomers will all be spared!
It'll just be another challenge for the 'lazy' Millennial's to deal with. They can just keep working for longer to cope. Besides, it's not like many will own homes so they'll need to be working until death to pay their rent anyway.
Raising the age of super is not solving the problem or doing anything constructive. If NZ was earning more, then it wouldn't take be an issue, and it isn't an issue because consultants have already said that it is affordable. IMO if that is one of the first ideas they are coming up with, then they are lacking ideas, and it is not a good sign of where things will go.
It's been National policy for a while, just confirmed to remain. Assertions of NZ super remaining affordable would now need to be looked at again. A Stuff article suggested canning the Super fund and selling it's assets to pay for the current largesse. Then (my opinion - not part of that article) super affordability could be addressed through means testing. (I'm near 58 and would consider being means tested out of super an outcome of good financial management - and some luck along the way of course).
Yes, but even though they've generally been good investors in the past (Portuguese bank aside) I doubt they expect such returns in the future. I guess the fund adds some diversity via offshore investments... but paying off the debt quickly is perhaps also meritorious- the earthquakes of the last couple days should remind us of the need to maintain a good fiscal balance sheet for the next disaster.
re: "Once again the ordinary folk are being lined up to be shafted by the politicians, who by the way, have a retirement package that is beyond gold plated and no other Kiwi can get. " supported by the bureaucrats with their protected jobs and benefits. It is the PAYE mugs in the private sector, with no private super ever having been open to them (pre or post KiwiSaver), who really suck the sav. The only justification for raising the retirement age is to apply it to those who, since the intro of Kiwisaver (which should be compulsory btw), have had the timeline/opportunity to build up a reasonable balance. Not sure what that timeline is - but say anyone under 45? (on the assumption needs 15-20 years contribution b4 retirement?)
So, as well as helping push property out of the reach of the younger generations Muller now wants to also push comfortable retirement out of the reach of those same folk. But, what's he asking folk who National helped redistribute wealth in previous terms to contribute in the meantime?
Is it all going to be simply more enriching of older asset owners for now, at the expense of younger generations of Kiwis? These leopards need to change their spots.
Exactly:
Depositors own the banks' liabilities and should be in receipt of risk adjusted returns.
From this thread today :
by Audaxes | 26th May 20, 12:52pm
If you have a 100% mortgage(s) with a bank or banks , then the risk is 100% with the bank in the event of default
Follow this trail of recent comments:by Audaxes | 21st May 20, 2:07pm
"Faced with the sudden realisation that loan repayments are drying up, it has always seemed that at this point the bank becomes, well, all 'bankish' on it and says, agitatedly: "HEY, give me my money back!""Well, I think we really are all in this one together."
Depositors certainly are and remain unsecured creditors of bank IOUs offered up to purchase borrowers' IOUs. No money here, just promises to pay. Nonetheless,
According to the Reserve Bank, the new capital requirements mean banks will need to contribute $12 of their shareholders' money for every $100 of lending up from $8 now, with depositors and creditors providing the rest.
by Te Kooti | 21st May 20, 3:24pm
Incorrect. ANZ have $84bn of housing loans for which their internal model calculates $17.4b of RWA. They hold capital against the RWA, so 12.5% x $17.4b = $2.2b capital. So for every $100 of housing loans they hold $2.60 of equity.Pretty leveraged huh!
by Te Kooti | 21st May 20, 3:29pm
It's actually even worse, their minimum reg capital requirement for $90b of home loan's is only $1.4b, so $1.55 of capital for every $100.Page 86 on this link. I will give you housing dgm's this - that is extraordinary leverage!
https://www.anz.co.nz/content/dam/anzconz/documents/about-us/wcmmigratio...
Air New Zealand, as of today, have not actually drawn any of that loan offer, but instead taken cuts to all sections of their expense account to the tune of $700M over the next year, that includes cutting out any dividends, which unfortunately leaves the NZ taxpayer in the breeze with no return on its current shareholding.
If AIR NZ were able to borrow from anywhere else at less than 9%, they would have done. Who else would lend to a capital and staff heavy business that is earning something like 10% of their pre-covid revenue? Dead company walking until (and unless) the world opens up again.
Mar 2000. Total Householder funds on deposit with Banks 38 Billion. Mar 2020 189 B. Guess where that 151 B came from. Here's a clue. Residential Mortgages total Mar 2005 103 B vs. Mar 2020 283 B. We added a million more people and lent out the money to house them. The proceeds went disproportionately to those who already owned property or had access to capital and got in early. The more you owned and sold. The more you made. Now the reserve bank is no longer interested in preserving the returns of TD investors. They would rather you spent the money. They have opened the way for banks to access wholesale funds. Local depositors will get what they are given.
Which just reinforces the notion that, as a country, we have our Debt tied up in the wrong thing.
Imagine if we still had $38 billion on deposit; banks scrapping to attract deposits from that lesser base, and $151 billion actually out there creating value and income for the country.
We have had our priorities set in the wrong place. Do we have the courage to change them now? I hope so, because 'this' is our last chance.
Ray Dalio's work on the 8 arcs that empires and societies go through as they ascend / descend looks very pertinent.
On the way up it's all about education and innovation. On the way down it's all about credit bubbles and debasing currency.
Perhaps you can see it too in the attitudes of some, the combination of anger at money invested in education for other NZers yet tacit acknowledgement that our credit-driven housing bubble is a good, positive thing, a veritable "good problem to have". In a world where the future contains more use of distributed, remote workers, education not credit bubbles will be a competitive advantage.
History will not be kind to the politicians who relied on credit bubbles, cheap imported and exploitable labour, selling assets etc. rather than investing in the country and in real economic policy.
Gonna need a real time RBNZ bank dashboard to pick the best gamble soon. Ultimately we end up in this situation not just because of Covid - starting rates would be a lot higher if we hadn't been decreasing them in order pretty much solely to create inflation. Cutting in an economy that was then functioning well with good GDP growth was always going to leave us with the problem of what to do when things went wrong.
Why the surprise? This is exactly what the RBNZ asked for. They wanted lending rates to drop, if lending rates drop, so do depo rates. If you must blame anyone, blame them. Even after this change, NZ depo rates still right up the top of OECD averages. The dangers of printing money eh
Already happening. There's no way the equity markets across the world should be at the point they are...mass govt. injections and people with no where else to put the money have grossly inflated the fundamental values...I guess if nowhere else to put the money they will keep going up until the brakes are put on by Govt. injections? I'm forgoing returns right now to be in cash and completely happy to do so, I don't want to be involved in this market at all, nor in TDs, not worth my time...just waiting on the sidelines to let this play out in the short to medium term!
And no, I also will not be putting my money in that rat invested, 75 year old, uninsulated, dubiously electric wired, backed up to an apartment block in Mangere (or wherever),1.2 million dollar house touted by the real estate agents as being a bargain...…….
The system is 100% rigged. If this is true, then the only discussions that are put into action are by those that are the ones rigging it.
The greater majority of Nz'ers are in debt, generally mortgage and car loans ( often these are in one loan). The system riggers ensure that printed money, or excess money, goes into property, and shares. (The shares are largely managed by funds.) The inflowing money pushes values up, and the riggers are seen as financial geniuses by the greater majority of those taking the debt.
Punters receiving great unrealised gains rarely ,if ever, question the nature of the system. Yvil would be the first to agree that you dont look a gift horse in the mouth, especially when realised gains offer firm validity of the system.
So if "we", the non-riggers disagree, well who cares?
Of course generally the non-riggers witness the downside to the system of ever increasing debt, the ever growing gap between rich and poor, the ever increasing cost of living and of course the ever increasing unaffordablity of housing.
Nothing changes for the riggers, as they are reaping what they expected. Nothing changes for those that see the need to change the system, because they cannot gain access to the mechanisms of change.
Yet, there is an array of alternatives OUTSIDE of the system.
Of course I will mention gold, yet this is only one alternative available.
Let's look at a country like India, or Thailand, where every day people regularly buy gold, often as jewellery. Should their fiat currency collapse, nearly ALL families in those countries have a store of alternative wealth, and it's not in any bank account.
Imagine, if global currencies collapsed, countries like India and Thailand would see such a massive increase in their middle class.
It's an interesting thought.
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