Being offered 5.50% for a one year term deposit is starting to get 'interesting'.
That rate is available from Rabobank. And in fact that rate is also available from SBS Bank for a nine month term.
Behind these two challenger banks, most of the main banks are offering rates above 5% pa also. BNZ and ASB also offer 5% for a nine month term.
What makes these new higher levels 'interesting' is that they are going up, just as you can sense that inflation is reducing.
CPI inflation was 7.2% as at September. Since then it has probably reduced, if only because petrol prices have fallen, and the NZ dollar has risen, both noticeably. Globally, the inflation impulse, while still high, seems to be moderating. That could well flow into New Zealand in the December quarter, and into 2023.
So, if we have rising term deposit rates and falling inflation, we have the prospect that 'real' interest rates could turn positive in the investable future.
We are certainly not there yet, but the prospect is real.
We have had three years of significant negative rates facing term deposit savers. That has been the longest stretch they have had to put up with since we started tracking term deposits in 2002.
If history showed a 'normal', it would probably mean that term deposit rates run at +2% above inflation. The RBNZ is assuming an average 6.4% inflation rate in 2023. But it seems unlikely 'normal' will return next year.
Wholesale interest rates have been energised by the unexpectedly strong Q3-GDP result, pushing swap rates up sharply in the past few days. Q4-GDP may also be better than expected if the re-opened borders continue to deliver the gains we saw in Q3. If those wholesale rates stay up, that will certainly underpin the current higher term deposit interest rates. But what is really required for them to stay up is stronger loan demand, and that looks less likely from the main driver, the housing market, through most of most of 2023. Many economists think we are in for a 2023 recession now.
Of course, there is one large factor we haven't discussed - tax. Investors only get a positive 'real' return when it appears on an after-tax basis. Tax makes the prospect more remote for 2023. But is also true that savers are very motivated by higher interest rates, shifting billions out of at-call and low-yielding savings accounts into higher yielding term deposits
An easy way to work out how much extra you can earn 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, especially if you are in the 39% tax bracket - PIEs are taxes at 28% flat.
The latest headline rate offers are in this table after the recent increases.
| for a $25,000 deposit December 16, 2022 |
Rating | 3/4 mths |
5 / 6 / 7 mths |
8 - 11 mths |
1 yr | 18mth | 2 yrs | 3 yrs |
| Main banks | ||||||||
| ANZ | AA- | 2.70 | 4.35 | 4.70 | 5.10 | 5.10 | 5.15 | 5.20 |
 |
AA- | 3.20 | 4.45 | 5.00 | 5.20 | 5.20 | 5.25 | 5.30 |
 |
AA- | 3.20 | 4.50 | 5.10 | 5.20 | 5.20 | 5.20 | 5.20 |
 |
A | 3.20 | 4.45 | 4.70 | 5.20 | 5.25 | 5.25 | |
 |
AA- | 3.10 | 4.45 | 4.70 | 5.20 | 5.25 | 5.30 | 5.30 |
| Other banks | ||||||||
| China Constr. Bank | A | 3.65 | 4.70 | 5.00 | 5.30 | 5.35 | 5.35 | 5.35 |
| Co-operative Bank | BBB | 3.00 | 4.55 | 5.00 | 5.25 | 5.25 | 5.30 | 5.30 |
| Heartland Bank | BBB | 2.80 | 4.75 | 5.10 | 5.30 | 5.10 | 5.20 | 5.20 |
| HSBC | AA- | 2.95 | 4.25 | 4.60 | 4.90 | 4.90 | 4.90 | 4.90 |
| ICBC | A | 3.65 | 4.45 | 4.75 | 5.25 | 5.25 | 5.25 | 5.25 |
 |
A | 3.20 | 4.60 | 5.00 | 5.50 | 5.25 | 5.30 | 5.30 |
 |
BBB | 2.70 | 4.05 | 5.50 | 5.00 | 5.10 | 5.15 | 5.20 |
 |
A- | 3.45 | 4.45 | 4.70 | 5.15 | 5.15 | 5.15 | 5.20 |
Term deposit rates
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47 Comments
RP, do your homework on Rabo, as being partially supported by an overseas bank (although it is an NZ Branch), proposed RBNZ policy option for 2023 MIGHT mean they have to divest their NZ retail customers, unless they make chages such as ring-fencing NZ assets. You should be able to get 5.5% TD 1 yr with the big 4 from the end of Feb. Recent data and swap rate reversals suggest a 5.75% 1 year (or 6%!!) TD MAY happen next year. Of course things can change very quickly, and rates could fall in 6 months. No one knows for sure.
Its always hard to pick the exact highs and lows of the market. If the 5 year TD gets to 5.5%, that may be enough for many (you can get 5.3% on the 5 year now). I suspect 5.5% will be taken by many over the age of 60 who will exit or not buy into rental housing with the no hassle TD option. Will be interesting to see if and by how much TDs fall next year when the Deposit Guarantee comes in. Look at how low the AU TD rates are right now (ANZ.au) with the guarantee in place.
So if the CPI halves, and gets back to the high end of the band at 3% then a normalised deposit rate would be 5%. It doesn't look like there's a whole heap of downside to current interest rates if that's the case. And it looks like what the RBNZ is sensibly aiming for.
Probably a lot higher than you think.
As the population of those with the capacity to tie funds up in a T/D for 5 years shrinks - ageing does that! - the duration of reinvestments is likely to fall, as people ask themselves, "Will I be here in 5 years time to take delivery of the proceeds?" and so the 5-year run might become orphaned.
I doubt the 5 year will get above 5.75%. It may peak between 5.3% and 5.75%, just my guess!! Remember many forecasters have had their hands burnt in the last 12 months, except for the prophet of course lol. The data in the last couple of days has cast a lot of uncertainty over how how rates will go in NZ. We seem to be heading for one of the highest scenarios, no surprise since our main asset, housing, was the most over-priced in the world.
The banks not paying for term deposits and no other investment opportunities in the NZ market worth investing is also one of the reasons for run away housing market.
The bureaucracy and political will is too much controlled by the financial and banking industry. They create an environment where people stop logical thinking and get into more and more debt. Debt is how the banks make money for their masters.
So yes banks want to create an environment in which they have to pay less in TD and get people into a sense that having more debt is a good thing. Just Google it and find how a lot of paid influencers tell everyone that debt is a good thing and it will make you heaps of money. But it's it goood for the long term sanity of society? Probably not. It creates greed and greed is the cancer killing anything good left in the society.
https://debtmanagement.treasury.govt.nz/kiwi-bonds
It can be a bit tedious to initially setup, but once you're in the system it's smooth enough to add / reinvest. It does feel a bit mickey mouse though, and no online access to your balance... just paper records and email.
At the risk of sounding like a broken record, CPI isn't the right metric to be using here. The real cost of a loan (or benefit, depending on which side of the ledger you are on) is the rate of interest, minus the rate of monetary inflation. The CPI measures price inflation.
Seems pedantic, but it can be the difference between a good investment and a bad one.
At the risk of sounding like a broken record, CPI isn't the right metric to be using here. The real cost of a loan (or benefit, depending on which side of the ledger you are on) is the rate of interest, minus the rate of monetary inflation. The CPI measures price inflation.
Agreed. But I think it's a combination of both if that makes sense to you. All we can really be assured of is that the ROI from term deposits is unlikely to working for cash as a store of value and preserving purchasing power.
Up until about 3 years ago the 5 yr TD rates were better than 1 yr rates. So the first graph above is a bit low in terms of the positive TD - CPI margin. For me at least, who had a long term view. Nowdays in my view it doesn't make much sense locking it away for 5 yrs. Yet.
Why will rates drop? Our data releases have so much lag I think at best case rates increases will stop for a bit before dropping. If we have another couple of better than expected GDP releases it’ll be this time next year before we know if we’re in a technical recession at the earliest. I don’t think we’ll see any rate drops next year.
The 30 year mortgage rates in the US have already dropped around 0.5% over the last five weeks.
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