Two banks reverse the down-trend and offer higher nine and 12 month term deposit rates. But Westpac cuts back

After a period where the main banks trimmed many of their key short term deposit rates, two banks - including a major one - are suddenly offering higher rates again.

SBS Bank is leading the charge with a eye-catching 6.40% for a nine month fixed term. That is the highest current rate from any bank for any term.

And now Kiwibank is getting in with a higher rate as well - 6.10% for one year, better than any other current carded main bank offer.

Update: Westpac has trimmed its nine month rate, taking its 6.15% 'special' back to 5.90%. But at the same time it has raised its 8 month rate to 6.05%.

Most savers have most of their cash savings in shortish terms and most of them have it at the main banks. The question is, is that wise?

And how much are you leaving on the table when you do that?

A quick check of recent swap rates (see chart below) shows that suddenly, after the Wednesday Reserve Bank Monetary Policy Statement signals, the one year rate has jumped back to the level it was for most of April. In April, six month (term deposit) TD rates averaged 6.05% and one year TD rates averaged 5.98% at the main banks. After the changes we are noting today, we are almost back to those levels again. So there may not be a lot of wholesale market pressure to go much higher. However it is possible one or more might follow Kiwibank up for competitive reasons. But don't bank of it.

SBS Bank's 6.40% nine month offer may attract some attention from the challenger banks. Rabobank still offers a close 6.30% for a 12 month TD, but it recently eased back from the 6.30% it had during April for six months, so there is a possibility they may come to the party.

And Heartland Bank followed others lower in early May for longer rates (but raised shorter ones), and it too might restore their higher April rates. These two (along with the Chinese banks) usually lead the competitive tension for banks that are rated less than 'A'.

And that is the key consideration for many term deposit savers - is the risk worth taking by going outside the main banks? We are now less than a year away from the public deposit guarantee scheme, so your main risk is for a bank to run into trouble in the next 365 days. Doesn't seem likely to me.

If you take the view that all banks are equal, credit risk-wise, for a nine month term deposit, you leave 25 to 40 bps on the table by choosing a main bank over SBS Bank. For a $25,000 term deposit over nine months, that works out at between $47 and $75 over the nine months, less tax of course. That is the 'cost' of choosing a main bank over the best challenger bank offer.

We should also point out that after-tax returns can be enhanced for some savers with higher tax rates, by the choice of PIE structures. Not all banks offer these, but most of the main banks do. For a nine month bank offer, they can be boosted by about ~30 bps going this way. In some cases that will make up any difference, or more.

Always ask a bank for a better rate. Many bank staff have discretion to offer more than the advertised rate. (And check your bank's app offers as they too are often enhanced to retain you).

Use the term deposit calculator here, or the one below the table, to calculator your expected net returns.

The latest headline term deposit rate offers are in this table after the recent increases.

for a $25,000 deposit May 27, 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	5.90	6.00	5.90	5.90	5.65	5.30
	AA-	4.40	5.90	6.00	5.90	5.70	5.40	5.20
	AA-	4.30	6.05	6.10	6.00	5.90	5.60	5.30
	A	4.50	6.05	6.00	6.10 +0.20		5.60	5.25
	AA-	4.30	5.90	6.05 -0.10	5.90	5.80	5.50	5.30
Other banks
Bank of China	A	5.50	6.20	6.20	6.15	5.95	5.70	5.35
China Constr. Bank	A	5.50	5.80	5.90	6.00	5.85	5.65	5.40
Co-operative Bank	BBB	4.30	6.05	6.10	5.90	5.80	5.70	5.35
Heartland Bank	BBB	5.50	6.25	6.25	6.20	6.00	5.90	5.80
ICBC	A	5.35	6.15	6.15	6.20	5.95	5.90	5.55
Kookmin Bank	A	4.40	5.60	5.70	6.00		5.00	4.60
	A	5.05	6.15	6.20	6.30	6.10	6.10	5.90
	BBB	4.20	5.90	6.40 +0.35	5.95	5.95	5.60	5.30
	A-	4.25	5.90	5.90	5.90	5.80	5.50	5.30

{Updated with more nuance on early May Heartland Bank changes.]