Over the past week there have been many changes to fixed home loan rates.
And there are many changes to term deposit offer rates as well.
Today (Wednesday), both BNZ and ICBC updated their term deposit offers, just the latest to do so.
Wholesale interest rates have been moving up too. Over the past week one year swap rates are up five basis points, and since the beginning of October they are up 40 bps. For longer terms, they are up 10 bps in a week and 60 bps in the month.
One interesting feature of Wednesday's BNZ change is that 3% rates have returned from a bank with BNZ now offering 3% pa for a five year term. The last time that benchmark had been reached was in September 2019. For a six or 12 month offer, it was last at 3% in August 2019. Most banks started 2021 with all their offers below 1%.
With today's changes, BNZ now has market leading rate offers among the main banks for all terms from nine months.
Savers have been avoiding term deposits, and let their balances atrophy over the past 26 months. But they haven't stopped saving, they have just held these funds in at-call transaction accounts.
Term deposit balances have reduced by $20 billion from $101 bln in February 2020, pre-pandemic, to $81 bln by the end of August this year.
Meanwhile, all other household bank balances have risen over the same time by +$43 bln to $126 bln.
Even though today's term deposit rate increases are 'substantial' from a bank's point of view and are up 30 to 60 bps, it seems very unlikely that the resulting 1.50% to 1.75% pa offers will be anything near enough to entice more savers to fix their holding in a term deposit in the terms they usually want.
And the banks may not really care - those savers are leaving their funds in accounts that pay nothing, or next-to-nothing. However, they will care if savers start moving their nest eggs away from one bank to another.
A growing deposit base does allow a bank to grow lending. But it gets fierce if their deposit base starts to fall - not only can't they grow their lending, they might have to shrink it. This is a special risk for banks that don't wholesale fund much, and that applies to most New Zealand-owned challenger banks. An aggressive term deposit marketing push by big banks might have an outsized consequential impact on challenger banks.
With inflation running at 4.9%, savers do have a problem. Leaving funds at a zero return will leave them in a much worse position after inflation, than getting some return to mitigate some of the inflation problem. But that return will have to be after tax and after inflation - and negative. It will just be less negative in a term deposit account.
One easy way to work out how much extra you can earn by switching is to use our full function deposit calculator. We have included it at the foot of this article. 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 with the markings for changes this week so far.
for a $25,000 deposit | Rating | 3/4 mths |
5 / 6 / 7 mths |
8 - 11 mths |
1 yr | 18mth | 2 yrs | 3 yrs |
Main banks | ||||||||
ANZ | AA- | 0.90 | 1.45 | 1.50 | 1.75 | 1.85 | 2.00 | 2.30 |
AA- | 0.70 | 1.10 | 1.30 | 1.40 | 1.70 | 1.90 | 2.30 | |
AA- | 0.90 +0.45 |
1.40 +0.30 |
1.60 +0.30 |
1.75 +0.35 |
2.00 +0.55 |
2.25 +0.65 |
2.50 +0.60 |
|
Kiwibank | A | 1.00 | 1.50 | 1.55 | 1.75 | 2.15 | 2.35 | |
AA- | 0.65 | 1.10 | 1.20 | 1.50 | 1.55 | 1.80 | 2.00 | |
Other banks | ||||||||
Co-operative Bank | BBB | 0.45 | 1.10 | 1.10 | 1.40 | 1.50 | 1.75 | 2.05 |
BBB | 0.60 | 1.25 | 1.50 | 1.30 | 1.15 | 1.80 | 1.35 | |
HSBC Premier | AA- | 0.55 | 1.05 | 1.20 | 1.30 | 1.60 | 1.90 | |
ICBC | A | 0.95 | 1.45 | 1.55 | 1.80 | 1.90 | 2.05 | 2.15 |
A | 0.40 | 1.35 | 1.50 | 1.55 | 1.65 | 1.80 | 2.00 | |
BBB | 0.50 | 1.45 | 1.50 | 1.55 | 1.55 | 1.75 | 1.90 | |
A- | 0.55 | 1.00 | 1.20 | 1.30 | 1.40 | 1.60 | 1.80 |
Term deposit rates
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44 Comments
I happen to fall into that category (although you probably mean people who already own a property or two). This is only 'excellent news' in the light of recent TD rates. Of course 3% is much better than the 1.x% we've been seeing for the past few years, but with inflation at 5% (real inflation probably more like 10-15%) it's pretty much nothing.
Share market(s) looking fragile? √
Property market(s) looking overdone? √
Cost of Debt rising? √
Population(s) looking restless? √
Solution? The usual one! Central Banks drop the cost of money to remove any problems. Bread and Circus' stuff.
Ergo: Invest now for 5 years, as that might look good in the not too distant future.
Definitely not. This time all major Central Banks will have their hands tied. The rise in interest rates is just at the beginning. Be ready for an OCR peak at 3% in NZ. Once inflation starts really biting the purchasing power of the majority of the population, rates will go up very quickly and the first casualty will be the housing Ponzi.
Invest in shorter terms, as they will look very poor when compared to much higher rates later on. Swap markets are already forecasting an OCR peak at over 2%, and they are increasing fast almost on a daily basis.
Not even 10% for two years could tempt me to lock my savings into a system that's carrying so much risk.
What are the chances that the financial stress built up in the global system since 2010 won't break between now and 2026?
That's the bet you're putting on the poker table - and all for a totally laughable rate of compensation for that particular risk.
According to ASB and Melbourne University, only 1/3 of NZers have >$10,000 in cash savings, so we're talking a pittance for most.
Alternatively, some people are holding USD stablecoins invested at interest rates approx 8%. Hell, even Ethereum is returning 5.4%.With so little available on markets (it's being stashed away for staking), owners are seeing their savings compound like you couldn't believe. According to Kevin O'Leary, it's even causing problems for U.S. banks who cannot compete and cannot shift away from their oppressive business models to get a slice of the action.
And where are the companies (eg. Celsius) that are returning that 8% getting the growth from?
Hmmm. Probably from new entrants into the system, right? Because if there was some great investment out there that was guaranteed to top 8%, you'd just invest in that directly.
So that 8% is either a) coming from venture capital, who will get sick of burning cash at some point, or b) coming from each new wave of entrants into the system, in which case it's a classic Ponzi scheme.
To be fair you can make good returns from Bitcoin if you follow the pump and dump cycles and get it right. For someone to win, somebody else has to lose. It has not gone to much of an all time high for a while so plenty of people have been burned or are holding for the new high. Its not a classic Ponzi, its the Ultimate Ponzi you just had to be in early and know when to bail out.
And where are the companies (eg. Celsius) that are returning that 8% getting the growth from?
Not from lending into existence. Should make you think that about what constitutes a real Ponzi scheme. In fact, it is far closer to what the sheeple probably think how traditional finance works.
J.C. .....great to see the Cryptocurrency market playing the banks at "their own game" through DEFI etc ! They are packing themselves, as in this current time, there is now an alternative to the thieving B's !! ......and for anyone that claims that the crypto market is just a "ponzi scheme" do some research ! while if you don't even know what a "whitepaper" is ,you are just blowing hot air, as it goes against your "entrenched, narrow" view of what the finance world should look like.
"The single biggest risk in ETFs is.... Market Risk."
ETFs are only an investment vehicle—a wrapper for their underlying investment. So if you buy an S&P 500 ETF and the S&P 500 goes down 50%, nothing will help you.
And whatever leverage you want to add to an ETF (x10?), increase the risk by the multiplier.
3% for a TD is not ridiculous, when you look at the very low dividend yields on large parts of the NZ equity market. Some of the low yielding REITs and utilities are awaiting a massive reckoning - base rates have moved such a long way up already, investors will soon be asking themselves why they will bother with the risk and volatility of equities for an extra 0.5%.
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