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With wholesale interest rates on the rise as the markets expect an OCR rise soon, we check where term deposit rates are now and how they compare to Aussie rates, where no rate rises are on the horizon

Personal Finance
With wholesale interest rates on the rise as the markets expect an OCR rise soon, we check where term deposit rates are now and how they compare to Aussie rates, where no rate rises are on the horizon
CPI NZ AU

There is still $82 billion invested in term deposits in New Zealand. While this is down from a peak of $104 bln in August 2019, it still represents 40% of household deposit assets ($209 bln) even if it's only 6% of total household financial assets ($1.427 tln). (RBNZ S40 and C22.)

The only reason deposits are placed at a fixed term is to earn a return, interest.

But these returns have been lean for the past two years.

However, they are improving, even if savers think the pace of improvement is too slow.

That may pick up soon if wholesale interest rates keep rising as they have done over the past few weeks.

That turn up has happened here, but there is no sign it will be rising anytime soon in Australia.

So now is an opportune time to check where we stand, and where we stand compared to savers across the ditch.

Here are the key positions in New Zealand:

Term deposit rate 3 mths 6 mths 1 year 18 mths 2 years
at least $10,000 % % % % %
ANZ 0.50 1.10 1.40 1.40 1.60
ASB 0.45 1.00 1.30 1.45 1.60
BNZ 0.45 1.10 1.40 1.45 1.60
Kiwibank 0.45 1.15 1.35   1.70
Westpac 0.40 0.90 1.30 1.35 1.60
Average these five 0.45 1.05 1.35 1.41 1.62
Bill or swap rate 0.68 0.87 1.19 1.30 1.50
margin from swap (bps) -23 +18 +16 +11 +12
           
NZ CPI rate 3.30 3.30 3.30 3.30 3.30

Of course, other investment grade smaller banks offer higher rates, with the offers of banks like Heartland Bank and Rabobank up to +30 basis points above some main bank offers.

Clearly, current rates are all less than inflation. And that is also before income tax considerations are made, which will make it even more negative.

But as bad as things are for Kiwis, they are worse for Aussies who use term deposits for income.

Here is their situation:

Term deposit rate 3 mths 6 mths 1 year 18 mths 2 years
at least $10,000 % % % % %
ANZ 0.05 0.10 0.20 0.20 0.20
CBA 0.08 0.20 0.35 0.35 0.35
NAB 0.10 0.20 0.25 0.25 0.30
Suncorp 0.45 0.45 0.40 0.35 0.50
Westpac (*=5 mths) 0.07 0.30* 0.25 0.25 0.30
Average these five 0.15 0.25 0.29 0.24 0.33
BKBM or swap rate 0.01 0.03 0.05 0.10 0.20
margin from swap (bps) +14 +22 +24 +14 +13
           
AU CPI rate 3.80 3.80 3.80 3.80 3.80
           
NZ advantage % +0.30 +0.80 +1.06 +1.17 +1.29
advantage after inflation +0.80 +1.30 +1.56 +1.67 +1.79

Just to be clear, the 'advantage' is relative and is for New Zealand savers over Aussie savers in the same type of term deposit instrument. It doesn't account for tax, and all are negative after inflation - just less so in New Zealand than Australia.

WDKHLWE

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18 Comments

Just on 1% for 6months at ASB here as I figure rates are going to be better come February for sure. Not really worried about the returns to be honest with all the rising uncertainty out there. You pretty much have only needed a house in your portfolio as well to this point in time to quit worrying about gains.

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Nothing like owning some real estate.

The weather is getting warmer.

Be quick.

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"these returns have been lean for the past two years"

I'd say dismal rather than lean.

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Why would someone bother with a 3 month TD @ 0.5% when you can get 1% with a 90 or 60 day notice account with kiwibank or rabobank repectively?

https://www.interest.co.nz/saving/call-account

In fact you can have instant access to your money and still get 0.75% with rabobanks premium saver...(although you lose the premium in the month you take money out)

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just somewhere to park it rather than risk it. $100k @ 1 & 0.5% respectively over 6 months difference in net return inconsequential really. Guess while it was there Bonus Bonds served in the same capacity. Play the chance of winning something tax free, nothing much to lose in terms of a TD return for same.

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Sure, but if someone came up to you and said you can have $250 or $500 which one would you take?

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Deposits are guaranteed in Australia but not in NZ. When you take out RWT on the NZ interest earned, it is sweet FA leftover. I'd prefer the security of the Aussie offer.

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10

Good point.

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Not to mention an extremely generous pension system that basically overshadows TDs as a savings/investment option and a tax system that understands the effect of taxing up realisation as opposed to year-on-year gains like our Kiwisaver.

That sort of thing is inexcusable, as is not adjusting income tax brackets for inflation for a decade. 

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Good point. We also should not forget the exposure of NZ banks to the current biggest Ponzi scheme in the entire western world: NZ residential housing. Once this gigantic bubble bursts, there is going to be enormous pressure on all NZ banks exposed to this Ponzi. 

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While the NZD is high against the AUD it may be worth moving some money across just to gain higher value despite lower interest.  

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Probably not as all Morrison seems capable of is pissing off China. I'm waiting for their whole economy to go down the toilet.

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USDC (U.S. Dollar coin) returns 8.88% on the Celsius network. Not 100% risk-free of course, but even you allocated only 10% of your cash holdings, you'd be better off than holding term deposits in NZ banks. 

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What are you talking about..  its down massively 

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I'm talking about USDC. What is down 'massively'? 

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Google says USDC is Coinbase ... is that right JC?

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No. USDC is a stablecoin that is pegged to the U.S. dollar. It can be bought on Coinbase. 

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Haven't been involved with term deposits since

a) I discovered you become "an unsecured investor" in the bank according to their own small print.

b) the risks started to out-weigh any small pittance the bank was offering.

As things stand, there isn't any interest rate that is worth the risk for me personally.

 

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