It wasn't that long ago (September 17) that we were reporting that 6% rates had almost disappeared, and savers needed to be fast to get the last of them.
Now it seems that 5% rates are evaporating and they too may need quick action to lock them in.
It is not dire yet, but the trend is clear.
Only BNZ and Kiwibank are still offering 5% or better rates for one year among the main banks; none are offering that for longer terms. Among the challenger banks for one year, better rates are still available from the three Chinese banks (Bank of China, China Construction Bank, and ICBC).
For terms less than one year, BNZ's eight-month 5.15% and Kiwibank's 200 day 5.25% stand out among the main banks, and it is the same Chinese banks besting all-comers for shorter rates.
Update: Kiwibank has announced two term deposit changes. They have raised their six month term deposit offer by +20 bps to 5.45%. This is a limited time offer until Monday, November 25, 2024. And they have cut their one year TD rate by -25 bps to 4.85%, removing another bank that had a 5% TD rate. This isn't a "limited time" change (!)
We are in a situation where some eight month rates are now better than nine month offers.
But in a falling market, it might seem attractive to lock in rates for a bit longer.
Our table below highlights rate offers of 5% or better.
Wholesale rates are all trending lower, especially for short-terms, as you can see here and here.
And of course, financial markets are pricing in a full 50 basis points chop to the Reserve Bank's Official Cash Rate at its November 27 meeting, only 11 business days away now. While it is true that global interest rates are getting reassessed on the prospect of expected and massive Trump instability and his new push to jerk up US federal government debt levels, that action is in longer term rates from these influences. Locally, and over the next year or so, the pressure will come from any OCR reduction(s).
Local rates are falling because 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. (There's also the "Shane Elliot logic" from our largest bank - 'we don't have to so we won't', because savers replicate much more often than they shift.)
And in the background, the Deposit Compensation Scheme (DCS) is getting organised by Treasury and the Reserve Bank. It will be in effect in about eight 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.
The Kiwi Bond interest rates in the table below probably indicate where term deposit (TD) rates are headed with the DCS.
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. The background colour-code indicates 5%+ rates still available. (Updated with Kiwibank's latest changes.)
| for a $25,000 deposit November 11, 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 | 4.35 |
 |
AA- | 4.25 | 5.25 | 5.05 | 4.85 | 4.55 | 4.35 | 4.35 |
 |
AA- | 4.25 | 5.25 | 5.15 | 5.00 | 4.65 | 4.35 | 4.40 |
 |
A | 4.50 | 5.45 | 5.10 | 4.85 | 4.50 | 4.40 | |
 |
AA- | 4.35 | 5.25 | 5.10 | 4.85 | 4.70 | 4.50 | 4.40 |
| Kiwi Bonds. 'risk-free' | AA+ | 4.50 | 4.25 | 3.75 | ||||
| Other banks | ||||||||
| Bank of China | A | 4.80 | 5.80 | 5.45 | 5.30 | 4.95 | 4.75 | 4.60 |
| China Constr. Bank | A | 4.70 | 5.75 | 5.40 | 5.20 | 4.85 | 4.65 | 4.50 |
| Co-operative Bank | BBB | 4.20 | 5.30 | 5.05 | 4.90 | 4.70 | 4.50 | 4.40 |
| Heartland Bank | BBB | 4.80 | 5.30 | 5.00 | 4.90 | 4.65 | 4.50 | 4.40 |
| ICBC | A | 4.85 | 5.80 | 5.40 | 5.20 | 4.85 | 4.65 | 4.45 |
 |
A | 4.25 | 5.30 | 5.05 | 5.00 | 4.75 | 4.50 | 4.40 |
 |
BBB | 4.25 | 5.30 | 5.05 | 4.85 | 4.60 | 4.50 | 4.50 |
 |
BBB+ | 4.35 | 5.25 | 5.10 | 4.85 | 4.70 | 4.50 | 4.40 |
Term deposit rates
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31 Comments
Yes. After tax you're luck if they keep up with CPI inflation.
Amazing how the same people that holler about the "real" house price falls say nothing about the real rate of return of TDs and bonds. And of course they also ignore that the "real" value of the mortgage on the house has also fallen due to inflation. Almost like they are trying to load the dice.
"Amazing how the same people that holler about the "real" house price falls say nothing about the real rate of return of TDs and bonds. And of course they also ignore that the "real" value of the mortgage on the house has also fallen due to inflation. "
If people want to know the answer between which is better after inflation, they should do the calculations themselves.
1) leveraged property buyer (e.g 80% LVR for most owner occupier buyers)
2) 0% LVR property buyer
3) time deposit
The key inputs will be the current market value of the property relative to the purchase price used in the calculation, and the rate of inflation.
Under some conditions, owning a property on high leverage will be better.
Under some conditions, a time deposit will be better.
The outcomes vary depending on the conditions.
Most people in NZ assume that leveraged property is the best outcome under ALL conditions - that assumption is incorrect as those highly leverage owner oocupier buyers who bought at or near the peak are now learning firsthand.
The financially ignorant and financially illiterate pay a high cost for their financial illiteracy.
Owner occupier buyers: CAVEAT EMPTOR.
Very true. the different conditions should always be factored in.
TDs might not be the greatest investment but they are very safe and they have greatly outperformed leveraged real estate over the past couple of years. Those who who held off buying a house and have been investing their deposit into TDs over the last couple of years will now be in a much stronger position to purchase a property than they were a few years ago.
In a perfect world, I wish governments could offer their citizens TD style investments where your savings make you just a few percentage points more (after tax) than inflation. I'd probably keep quite a of money in those at all times.
"I wish governments could offer their citizens TD style investments where your savings make you just a few percentage points more (after tax) than inflation."
The US government issues these securities.
They pay a low inflation adjusted return, and then are subject to federal income tax. The highest recent rate is 2.375%, less federal income tax.(10 -37% depending on income) so a 1.5~2% real rate, if you think the CPI-U rate is a reasonable indicator of inflation.
https://treasurydirect.gov/auctions/announcements-data-results/tips-cpi…
When we purchased Kiwibonds, we just instructed our bank to do the transfer. The scanned applications were emailed in advance to Computershare. We found the process very straight forward. It's entirely understandable some might want to deal with Government directly with such things.
RP, why would you want to put your $ into boring Term Deposits, when the true return on property bought well will return you so much more?
The thing is though in many cases you have to put a bit if work into it, hence why some do not get the good returns, and are prepared to accept low returns!
Because TD's like the ones from ASB pay out monthly and you can live off it. The big risk is you end up with all your money tied up in property and you are asset rich and cash poor, my parents found themselves in that spot and didn't have enough money to repair the car.
If you are retired then it makes sense to sell your investment properties, put that money into various TDs and live off the interest for the next couple of decades until your money runs out (or gets close to it). Who would want to worry about managing their investments in retirement, right? TD's would be such an easy and peaceful way to do it.
Personally would never put money in Bank Term Deposits, but that is what they want you to do, as they pay a very poor rate of return.
I appreciate that many have no appetite to make high returns by actually making an effort!
TD’s are for those that choose to just sit back and that is fine if they are happy to not invest, as TD’s really arent an investment as it will not increase your financial position, as it barely keeps ip with inflation.
If you know what you are doing, there is plenty to be made in property in every property market, and that is what makes the difference between being successful and not successful financially!
People that are financially successful and are older and are not interested in any risk and are not greedy find that a sizable chunk of cash in a TD works just fine. A quick calculation shows I don't really care if I even spend some of the principle, its a cruise to getting the super now at age 65. Life is about having other interests, its not all about making more money you don't even need, but hey I already know I'm in the minority with the way I think.
Hold my beer...have you heard of the magic money tree...?
There's a graph here of US Federal debt held by the public to GDP, have a look at the projection
https://en.m.wikipedia.org/wiki/National_debt_of_the_United_States
Indeed I have heard of the magic money tree....and the other 194 trees in the orchard are getting a little pissed of with giving their fruit to it.
But even worse, the magic money tree is owned by a cartel who's membership shrinks by the day.
I project the projections will prove incorrect.
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