More banks have trimmed their term deposit rate offers today - but amazingly there is still one offer in the market for a rate over 6%

The relentless, continuous, small reductions to term deposit offers keep on coming.

Today, BNZ, ICBC and Rabobank all trimmed their term deposit rates.

It has been a trend across all banks for two months now; those small, relentless reductions.

And one bank, ANZ, has taken their offers down closer to the 'risk-free' Kiwi Bonds that Treasury offers. For a six month term, ANZ now only offer a premium of +25 bps. For a one year term that premium is now only +30 bps. These are historically low.

And of course, the lower 2.2% CPI reading for Q3-2024 will keep the bets for another outsized OCR rate cut (although it may be restrained by the high non-tradable component), to be followed by more retail rate reductions (and probably an adjustment lower for those Kiwi Bond rates too).

So it is amazing that there is still a rate offer in the market for more than six percent - the 6.10% rate from SBS Bank for six months. (For them, term Investments rates are for Redeemable Share Investments.)

It is for a "limited time" and is unlikely to last long, especially after Rabobank reduced its six month rate from 5.80% to 5.60% today. Now that SBS Bank has an outsized 35 bps (vs TSB) to 85 bps (vs ANZ) advantage over its main rivals for that popular term.

Why are rates falling? There are many reasons. And as you review them you may get the impression these reasons will be around for some time yet.

First, loan demand is weak, and most banks don't need the funds. So competitive pressure for retail funding is not strong. There is no real commercial penalty on banks for offering lower-than-necessary rates to savers.

Second, wholesale funding costs are falling due to a global shift of lower international policy rates by central banks.

Thirdly, inverted rate curves are unwinding - and that probably means shorter rate offers are going to fall faster than for longer terms.

Fourthly, savers have been aggressive seeking higher rates, and money has been shifting into term deposit savings.

And lastly, in the background, the Deposit Compensation Scheme (DCS) is getting organised by Treasury and the Reserve Bank. It will be in effect in about nine months (mid-2025). Institutions in that scheme (both banks and non-banks) will have to then pay into the scheme so they can say to their customers they are protected. That fee will undoubtedly be deducted from institution rate offers - the customer will pay.

Banks don't need the DCS cost issue to come up suddenly in mid-2025 with a noticeable drop in rates at that time. So in all likelihood, offer rates will start slowly being whittled back from now on so that the impact is hardly noticed.

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.

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 16, 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	5.25	5.00	4.80	4.55	4.45	4.30
	AA-	4.25	5.60	5.25	5.05	4.65	4.35	4.35
	AA-	4.25	5.55	5.20	5.05	4.65	4.35	4.40
	A	4.65	5.50	5.25	5.10		4.50	4.40
	AA-	4.50	5.60	5.30	5.05	4.70	4.50	4.40
Kiwi Bonds. 'risk-free'	AA+		5.00		4.50		4.00
Other banks
Bank of China	A	4.70	5.75	5.40	5.20	4.85	4.65	4.50
China Constr. Bank	A	4.95	5.85	5.45	5.30	4.90	4.65	4.50
Co-operative Bank	BBB	4.30	5.65	5.30	5.15	4.80	4.55	4.50
Heartland Bank	BBB	5.00	5.50	5.25	5.05	4.70	4.60	4.50
ICBC	A	4.85	5.80	5.40	5.20	4.85	4.65	4.45
	A	4.55	5.60	5.35	5.20	4.85	4.60	4.50
	BBB	4.25	6.10	5.20	5.05	4.70	4.50	4.50
	BBB+	4.25	5.65	5.30	5.05	4.65	4.50	4.50