Following ANZ's call that we can probably expect two more 25 basis points Official Cash Rate rises, the first being later this month, financial markets have sharply changed their tune and are today are pricing in a 50% chance of that, and another similar chance in May.
Banks can't ignore these changes, even on the term deposit side.
On Monday, BNZ raised its six month rate by five basis points to 6.05%. That matched Kiwibank among its main rivals and they follow Westpac who are now up to 6.10% for eight months.
All this comes as term deposit (TD) savers move away from the very short terms of three months or less. That said, more than a third of their TD balances will roll-over within three months, the largest single block. For terms up to six months, the share has remained stable at about 30%. For terms up to one year, the share has risen relentlessly to its highest since this data series started in 2011, now at 27%. These weightings happened as the total term deposit balances rose to $200 billion, up 17.2% in a year.
With ubiquitous 6% plus rates for the terms where almost all the term deposit rates are concentrated, and with prospects the OCR will rise from here over the next three months, savers could reasonably expect that retail term deposit rates might firm from here. If the present 5.50% OCR actually does become 6% by May, some of this increase could well flow through to retail TD offers, especially by challenger banks.
However, if rate rises also push up short term borrowing rates, the usual extra mortgage demand during the February to Easter real estate selling season could either shift borrowers to longer fixed mortgage terms that don't get this pressure (say three year fixed terms), or it could quell demand for buying houses because of the affordability stress from higher rates. In that case, banks will avoid having to pay extra for deposits because the loan demand isn't there.
A quick check of the swap rate chart below shows how fast wholesale markets are responding. In fact the 38 basis points jump in the past week for the one year swap rate is the largest rise following a long stable or easing period, since 2014.
The latest headline term deposit rate offers are in this table after the recent increases.
| for a $25,000 deposit February 12, 2024 |
Rating | 3/4 mths |
5 / 6 / 7 mths |
8 - 11 mths |
1 yr | 18mth | 2 yrs | 3 yrs |
| Main banks | ||||||||
| ANZ | AA- | 4.30 | 6.00 | 6.00 | 6.10 | 6.00 | 5.75 | 5.50 |
 |
AA- | 4.40 | 6.00 | 6.10 | 6.10 | 5.90 | 5.65 | 5.35 |
 |
AA- | 4.30 | 6.05 +0.05 |
6.10 | 6.10 | 5.90 | 5.65 -0.10 |
5.35 -0.15 |
 |
A | 4.40 | 6.05 | 6.10 | 6.15 | 5.70 | 5.35 | |
 |
AA- | 4.30 | 6.00 | 6.10 +0.10 |
5.90 -0.10 |
5.80 -0.20 |
5.50 -0.20 |
5.30 -0.20 |
| Other banks | ||||||||
| Bank of China | A | 5.20 | 6.10 | 6.20 | 6.30 | 6.10 | 6.10 | 6.00 |
| China Constr. Bank | A | 5.20 | 5.70 | 5.80 | 5.90 | 5.85 | 5.65 | 5.50 |
| Co-operative Bank | BBB | 4.20 | 6.10 | 6.10 | 6.15 | 6.00 | 5.80 | 5.55 |
| Heartland Bank | BBB | 5.50 | 6.05 | 6.15 | 6.30 | 6.10 | 6.10 | 5.85 |
| ICBC | A | 5.00 | 6.10 | 6.15 | 6.15 | 6.05 | 6.00 | 5.55 |
| Kookmin Bank | A | 4.40 | 5.60 | 5.70 | 6.00 | 5.00 -0.20 |
4.60 -0.60 |
|
 |
A | 5.05 | 6.15 | 6.20 | 6.30 | 6.10 | 6.10 | 5.90 |
 |
BBB | 4.20 | 6.05 | 6.15 | 6.15 | 6.00 | 6.00 | 5.90 |
 |
A- | 4.25 | 5.90 | 5.90 | 6.00 | 5.90 | 5.75 | 5.50 |
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31 Comments
Globally, bond yields have been falling for exactly that reason, i.e. big money betting that rates will fall and the bonds will go up in price.
However, it's not easy to sell a TD in NZ, especially a short one and/or low value one. This is where bonds are better but NZ "investors" usually just look at what banks offer. (We're a pretty unsophisticated "investment" market here in NZ.)
Bonds may be a better option than TDs to hold for a longer term.
If a longer dated TD needs to be redeemed early the bank wins. But a bond can be sold. And if the interest rate attached to that bond is higher than the current prevailing interest rate it will be worth more than the face value. (Some maths in required to work out what it's worth. Yeah. Hard work huh?) So bonds can offer a double win. 1. good rate. 2. higher value if sold early.
https://www.consumer.org.nz/articles/how-to-invest-in-bonds?
(p.s. Never had a TD for longer than 1 year and mostly 6m or less. Had lots of bonds though. On a good day - my maths can be pretty good. On a lazy day - I just use stuff I know is doing the right maths from the internet. )
Diversification is key, as always.
Diversification is to be achieved among asset classes (depending on your investment horizon and risk profile), among markets and industry sectors, and into multiple currencies (with some level of hedging, of course).
When it comes to the particular asset class represented by term deposits, always give a good look at current swaps and their recent evolution. In any case, you should always spread your TD portfolio into different maturity dates from a 6-month to a 3-year future maturity date (depending, of course, also on your particular circumstances). I would not concentrate all my TD's maturity dates into a narrow maturity period - too risky if your call is wrong.
Its going to be an endless summer for those with a decent TD. Rates dropped back a bit from the 6.25% peak for 12 months so it now looks like at least an official 25bps hike is required to get them back there. Don't see rates changing that much this year to be honest, the RBNZ needs to give the overleveraged a kick in the nuts.
I think they mean paying down the mortgage is better than putting spare cash into TDs.
No spuriking that I can see just common sense.
Um, delboy said the same thing, with the same typo for "spuriking." What's going on? Isn't this the second time this has happened, with another username as well?
I'll give you the benefit of the doubt that you're mucking up quotes but this isn't a good look.
Obviously it's smarter to first pay off your debt for which you are charged 7.5%, rather than save that money at only 6%.
But if you have no debt and have the option to make 6+% on your savings when inflation is expected to be below 6%, then it makes a lot of sense. This is a period when savers might finally have the upper hand, especially if they are saving for a purchase that is expected to come down in price by the end of the year, like a second-hand car, for example (double the benefit!). Everyone is in a different situation, so a TD might be a bad idea for some and a great idea for others.
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