Key challenger bank bucks the falling rate trend for term deposit savers, raising two key rates to market-leading (or close) levels

TSB is bucking the recent downward trend in rate offers to savers, raising two rates on Friday.  

It has raised its key 6 month rate by 15 basis points (bps) to 5.90% pa. At this level TSB has the market leading rate among all banks, a position it shares with Rabobank for this term.

And TSB has raised its one year rate by 30 bps to 5.50% pa. Although this level is bested by Rabobank's 5.60%, it is close to the highest.

Both new rates are far better than what is offered by any of the five main banks.

TSB's rates are for a minimum deposit of $1,000 with interest paid or compounded.

Apart from a lingering offer from the Korean bank Kookmin, there are now no 6% rates in the market.

Over the past week or so wholesale swap rates have stopped falling, and there has been some firmness in the longer end of the swap curve based on global pressures.

But despite that, TSB's move to raise a couple of key rates to at or near market-leading levels is interesting and somewhat unexpected at this time.

TSB does not offer term deposits as PIEs.

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 18 months or more. We are seeing more rates starting with a '4' across shorter terms now. As you can see most majors have rates starting with a '4' for 18 months now. 

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 but it is retreating quickly. You now 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. 

for a $25,000 deposit September 6, 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	5.50	5.20	4.90	4.70	4.60
	AA-	4.40	5.65	5.30	5.20	4.80	4.50	4.50
	AA-	4.30	5.80	5.30	5.20	4.80	4.65	4.50
	A	5.00	5.80	5.55	5.45		4.90	4.70
	AA-	4.50	5.65	5.30	5.05	4.80	4.60	4.50
Other banks
Bank of China	A	5.30	5.90	5.60	5.50	5.10	4.90	4.90
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	5.50	5.30	4.90	4.70	4.60
Heartland Bank	BBB	5.20	5.80	5.55	5.30	4.95	4.75	4.65
ICBC	A	5.30	5.80	5.45	5.40	5.05	4.85	4.75
	A	4.55	5.90	5.80	5.60	5.20	5.00	4.75
	BBB	4.30	5.80	5.55	5.25	5.00	4.70	4.70
	BBB+	4.25	5.90 +0.15	5.50	5.50 +0.30	5.00	4.70	4.60