A cycle of term deposit rate cuts is starting, underpinned by falling international rates and weak local loan demand. That opens up variances and opportunities for savers who act quickly to exploit them

With the ending of the BNZ 'special' and the AMP 'premium', and the sharp cuts in term deposit rates by ANZ, it is now opportune to assess where these offers to savers have retreated to.

We are probably only at the start of a retreating phase, however.

ANZ cut its rates hard, taking up to -30 bps off its offers, and this included the most popular terms.

Now BNZ has settled on its lower rate offers too.

These two recent moves show differing approaches. The ANZ cuts were harder in the terms that are most popular. In fact, ANZ now offers the lowest rates for terms 6 to 12 months from any main bank, and against almost all the challengers as well.

BNZ on the other hand cut more modestly and its new six month rate (5.95%) is now higher than any other Aussie main bank, only bested by Kiwibank's 6.05% at this point.

The balance of risk at this point is that term deposit rates at 6% or more from almost any main bank for any term are likely to fade away quickly. But until some of the others move - and that may come quickly now - there are still 6% rates available from the main banks, and up to 6.3% at challenger banks.

Wholesale interest rates are falling. Expectations are rising that the US Fed will cut sometime in 2024 and with markets pricing in that expectation they are doing the Fed's job for it. Similarly for the RBNZ and New Zealand. Look at the swap rate chart below.

And there is another powerful reason term deposit rate offers are falling - a lack of loan demand. Banks compete for funding to support their lending activities. But if loan demand stays weak or even weakens, there is no good commercial purpose by banks to promote deposit activity or win more share. In fact, if loan portfolios backslide the incentive will be to let their deposit books shrink in unison. "Attractive rates" would then disappear, probably across the board.

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 basis points 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 July 18, 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	5.75 -0.15	5.75 -0.25	5.70 -0.20	5.60 -0.30	5.35 -0.30	5.10 -0.20
	AA-	4.40	5.90	6.00	5.90	5.70	5.40	5.20
	AA-	4.30	5.95 -0.20	5.90 -0.10	5.80 -0.10	5.60 -0.25	5.40 -0.20	5.20 -0.05
	A	5.00	6.05	6.00	5.90		5.60	5.25
	AA-	4.30	5.80	6.00	5.80	5.70	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	6.00	6.00	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	5.40	6.15	6.15	6.20	5.95	5.70	5.40
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	5.90	5.60
	BBB	4.20	6.05	6.05	5.95	5.80	5.50	5.30
	A-	4.25	5.90	5.90	5.90	5.80	5.50	5.30