We last looked at term deposit rates for savers two weeks ago.
But even since then, there has been a lot of movement - all of it down and almost all of it for terms one year and longer. Today, ANZ cut some key rates hard, by as much as -40 bps. Updated with Cooperative Bank changes.
Six percent or higher rate offers were available from six banks, but are now only available from five, and from those for fewer term options:
- Bank of China for six months
- ICBC for six months
- Kookmin Bank for one year
- Rabobank for six, nine and 12 months
- TSB for six months
One thing that has happened is an opening up in the differences between banks, including the five major ones. Among those majors, Kiwibank is offering a small advantage. But their levels are still up to 50 basis points lower than the best challenger bank offer.
| 3/4 mth |
5/6/7 mth |
8-11 mth |
1 yr | 18 mth |
2 yrs | 3 yrs | |
| % | % | % | % | % | % | % | |
| Best main bank | 5.00 | 5.90 | 5.80 | 5.65 | 5.30 | 5.25 | 5.00 |
| Best challenger bank | 5.50 | 6.00 | 6.00 | 6.10 | 5.70 | 5.50 | 5.20 |
| - advantage (bps) | 50 | 10 | 20 | 45 | 40 | 25 | 20 |
When you invest, always check how interest is compounded. Depending on how much you are committing, compounding more often is materially better. But some banks advertise their "interest at maturity" rates different to their compounding rates (which for some can be set a little lower). Both Kiwibank and Rabobank do this, although most other main banks don't.
Use the calculator at the foot of this article to see the differences.
Now rates in the 4% range have already blown in for three years or more. Westpac in fact is down to 4.70% for two years, the only bank that low for that term. We suspect we will be seeing more rates starting with a '4' across shorter terms relatively soon.
The highest rate from any bank, any term, is Rabobank's 6.10% for 12 months. After-tax of 30%, that is 4.27% and still positive after inflation that seems to be running at 3.3%. That 4.50% Westpac rate will return only 3.15% after the same tax, now less than inflation.
But for taxpayers on 30% and living in a 3.3% inflation world, that gets breached when offer rates fall below 4.70%. We still have headroom of about 1% before that is reached in the shorter terms. But you have to think we are looking at a future where tax-paid term deposit rates are likely to fall below inflation again. Many savers have been there, done that, and know it is not nice.
Both the wholesale and retail rate curves are falling and flattening, a trend we expect to see for a while yet.
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). But in this environment don't get your hopes up for a positive response. Carded rates are likely to now be the 'best rate', except in quite special circumstances.
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 changes to start the week. (Updated with Cooperative Bank changes.)
| for a $25,000 deposit August 19, 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 | 5.60 -0.15 |
5.20 -0.40 |
4.90 -0.40 |
4.70 -0.35 |
4.60 -0.20 |
 |
AA- | 4.40 | 5.75 | 5.50 | 5.40 | 5.00 | 4.80 | 4.80 |
 |
AA- | 4.30 | 5.90 | 5.50 | 5.40 | 5.00 | 4.80 | 4.60 |
 |
A | 5.00 | 5.90 | 5.80 | 5.65 | 5.25 | 5.00 | |
 |
AA- | 4.30 | 5.80 | 5.50 | 5.20 | 4.90 | 4.70 | 4.50 |
| Other banks | ||||||||
| Bank of China | A | 5.40 | 6.00 | 5.95 | 5.85 | 5.55 | 5.50 | 5.15 |
| China Constr. Bank | A | 5.30 | 5.50 | 5.40 | 5.35 | 5.20 | 5.05 | 5.00 |
| Co-operative Bank | BBB | 4.30 | 5.80 -0.05 |
5.50 -0.25 |
5.30 -0.35 |
4.90 -0.40 |
4.70 -0.35 |
4.60 -0.25 |
| Heartland Bank | BBB | 5.30 | 5.90 | 5.80 | 5.60 | 5.20 | 5.00 | 4.80 |
| ICBC | A | 5.50 | 6.00 | 5.90 | 5.85 | 5.55 | 5.40 | 5.05 |
| Kookmin Bank | A | 4.40 | 5.60 | 5.70 | 6.00 | 5.00 | 4.60 | |
 |
A | 4.55 | 6.00 | 6.00 | 6.10 | 5.70 | 5.50 | 5.20 |
 |
BBB | 4.30 | 5.95 | 5.80 | 5.65 | 5.30 | 5.00 | 5.00 |
 |
BBB+ | 4.25 | 6.00 | 5.70 | 5.60 | 5.30 | 5.20 | 5.00 |
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9 Comments
"The highest rate from any bank, any term, is Rabobank"
That's because they are totally reliant upon lending to the residential property market and the incessant demand for more Debt creation by that market. Oh no, hang on! That's not them. It's the 'major' banks, isn't it! (ie: the headline - "Unless loan demand picks back up, savers will be offered less and less")
"Unless loan demand picks up, savers will be offered less and less"
This is to be expected given the awful conditions prevailing. The pain should be more evenly spread. It's doesn't require rocket science to figure out why banks are flush with deposits at a time of weak loan demand.
I'm amazed that Rabobank still offers 6.10% for 12-months. We've been with them since the beginning and if you want your money to be on-lent to support Agriculture and avoid housing this is the number one.
Interest rates at their heart are an indication of market Risk. The lower they go, the Riskier the market - any market. Why? Because it tells us that borrowers don't think the risk of borrowing at, say, 5% can be recouped and then make a profitable return. The lower our rates go, the higher the Risk that's building up because absent a profitable return only speculation can encourage further borrowing. Pretty much how we've been running our economy for decades.
Taking out a loan is a guarantee of only one thing - a set principal amount + interest has to be repaid by the Borrower. Anything else; whatever the funds are used for, is...Risk.
Not a problem. Markets have a wonderful way of educating us all. But as a matter of interest (forgive the pun) what do you think is at the heart of any interest rate? Don't tell me. The Credit Worthiness of the Borrower, right? The Collateral they have to pledge?
Any Lender is only interested in one thing - the capacity of the Borrower to repay the Loan. And today's Credit Worthiness or Collateral can be tomorrow's Dog Tucker. The Lenders to, say, Du Val are about to find that out, if they haven't already.
Low Rates encourage Lenders to pick the only very best candidates to lend to. And as that happens less and less Debt gets created, and as this article captions less money goes into the System, and prices and rates fall again.
Household credit growth has been limited by subdued income growth since 2009:
https://www.rbnz.govt.nz/statistics/key-statistics/household-debt
Kiwis want to borrow but are limited by serviceability.
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