Term deposit rates are rising in New Zealand. And savers are chasing those higher rates, as we can see from the fast-recovering term deposit balances (S40).
But restrained loan demand means that banks have been equally restrained in chasing more deposit market share with higher interest rate offers than their rivals.
We can see that restraint in a number of ways, but one is to view the premium New Zealand terms deposits have over their equivalent Australian rates.
This premium has shrunk in the past six months.
The premium to "risk-free" (like the Treasury Kiwi Bond rates) has shrunk too, but that is partly because Kiwi Bond rates have jumped recently.
New Zealand savers at banks still have advantages over their Australian counterparts, but they are less going into 2023.
And of course, everything is negative after tax and after inflation - but perhaps less negative than it has been in a long time.
That negativity will depend a lot on the next CPI result to December 2022, which will be released on January 25, 2023. One component that will tend to reduce the September 7.3% pa rate will be the petrol price. That has dropped by -12% in the quarter, and is down -7% from a year ago. A lower December CPI will help savers tolerate the higher face term deposit interest rates even better.
Here is a workup of how term deposit rates compare currently between unguaranteed New Zealand, and guaranteed Australia.
| The latest headline rate offers are in this table. | ||||||||
|
for a $25,000 deposit
|
Rating | 3-4 | 5-7 | 8-11 | 1 | 18 | 2 | 3 |
| January 10, 2023 | mths | mths | mths | year | mths | yrs | yrs | |
| % | % | % | % | % | % | % | ||
| New Zealand | no Govt guarantee | |||||||
| ANZ | AA- | 3.20 | 4.55 | 5.00 | 5.20 | 5.20 | 5.25 | 5.25 |
| ASB | AA- | 3.20 | 4.45 | 5.00 | 5.20 | 5.20 | 5.25 | 5.30 |
| BNZ | AA- | 3.20 | 4.50 | 5.10 | 5.20 | 5.20 | 5.20 | 5.20 |
| Westpac | AA- | 3.20 | 4.60 | 5.00 | 5.25 | 5.25 | 5.25 | 5.25 |
| ------- | ------- | ------- | ------- | ------- | ------- | ------- | ||
| Main bank average - NZ | 3.20 | 4.53 | 5.03 | 5.21 | 5.21 | 5.24 | 5.25 | |
| Australia | A$250,000 Govt guarantee | |||||||
| ANZ | AA- | 2.00 | 2.55 | 2.55 | 4.00 | 4.00 | 4.00 | 4.00 |
| CBA | AA- | 1.95 | 2.45 | 2.45 | 3.70 | 3.70 | 3.95 | 3.95 |
| NAB | AA- | 2.00 | 2.55 | 3.75 | 3.75 | 4.00 | 4.00 | 4.00 |
| Westpac | AA- | 1.60 | 2.10 | 2.10 | 3.85 | 3.85 | 3.85 | 3.85 |
| ------- | ------- | ------- | ------- | ------- | ------- | ------- | ||
| Main bank average - AU | 1.89 | 2.41 | 2.71 | 3.83 | 3.89 | 3.95 | 3.95 | |
| The NZ advantage | ||||||||
| ANZ/ANZ | 1.20 | 2.00 | 2.45 | 1.20 | 1.20 | 1.25 | 1.25 | |
| ASB/CBA | 1.25 | 2.00 | 2.55 | 1.50 | 1.50 | 1.30 | 1.35 | |
| BNZ/NAB | 1.20 | 1.95 | 1.35 | 1.45 | 1.20 | 1.20 | 1.20 | |
| Westpac/Westpac | 1.60 | 2.50 | 2.90 | 1.40 | 1.40 | 1.40 | 1.40 | |
| ------- | ------- | ------- | ------- | ------- | ------- | ------- | ||
| Average advantage | 1.31 | 2.11 | 2.31 | 1.39 | 1.33 | 1.29 | 1.30 | |
| July 2022 advantage | 1.46 | 2.03 | 2.05 | 2.36 | 2.45 | 2.49 | 2.50 | |
You may also wish to adjust for the difference is official policy rates, which is +1.15% being the difference between the RBNZ's 4.25% OCR and the RBA's current 3.10% This is the same difference that applied when we last looked at these comparison in July 2022. The RBNZ and the RBA have raised their policy rates by the same amount over the intervening six months.
The fact that the NZ advantage has shrunk in that time could be because we are that much closer to having a deposit guarantee in New Zealand. Banks will 'pay' the NZ Government for that (just like they do in Australia), and that deposit guarantee cost will be essentially covered from the interest rate offered.
The New Zealand Depositor Compensation Scheme is being prioritised ahead of the rest of a range of other regulatory changes and is expected to be up and running in early 2024. Then, New Zealand term deposits essentially become risk-free. It seems unlikely any bank will fail between now and 2024, so the shift to 'risk-free pricing looks like it is underway. Slowly. So no one really notices.
Recall, we do have risk-free term deposits available now in the Treasury's Kiwi Bond offers. These are currently priced like this:
| 6 | 12 | 24 | ||||||
| mths | mths | mths | ||||||
| % | % | % | % | % | % | |||
| Kiwi Bonds | AA+ | 3.75 | 4.25 | 4.25 | ||||
| Main bank TD average | AA- | 3.20 | 4.53 | 5.03 | 5.21 | 5.21 | 5.24 | 5.24 |
| difference bps | 78 | 96 | 99 |
Readers will notice that Kiwi Bond rates are actually higher than Australian bank guaranteed rates. (The Australian Government risk-free involves a credit rating of AAA, one notch higher than New Zealand.)
Part of this shift is because depositors will essentially get a AA+ credit rating on their New Zealand bank deposits. That is a two step upgrade from the main bank ratings at present. But the Government guarantee puts the taxpayers on the hook for any bank failure to the advantage of savers, essentially socialising the risk of any losses. The Government is keen for the costs of that benefit to apply to savers, so they won't stand in the way of banks recouping those costs. In the end it is the saver who benefits from the protection, not the trading bank.
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