With swap rates probably falling about as far as they will go, but more OCR cuts coming, saver preferences for short term deposits will likely mean they are facing sharply lower offer rates

The noose is closing on 5% term deposit rates.

Now no main banks offer that for a one-year or longer term. And only two challenger banks do, both Chinese state-owned banks.

We have been following the fall in home loan rates, and these falls have largely been mirrored in term deposit rates at the same time.

But there are anomalies. BNZ's 5.25% six month rate is one among the main banks. ICBC's 5.65% six month rate among the challenger banks is another.

But neither will probably last very long from here.

Respected analysts are saying that wholesale swap rates are unlikely to move down much from where they are now. And that is likely to be the case even after the next expected Reserve Bank Official Cash Rate cut in February. So that probably means short rates will keep on declining while longer rates don't. And expect them to fall in the zone - six months and shorter- most savers prefer.

We are in a period where the rate inversions are unwinding. (Rate curve inversions are where short rates are higher than long ones.) Our inverted rate curve has lasted a long time, and many savers may think it is 'normal', but it isn't.

With international long rates firming, and local short rates having more downside, the inversion could vanish relatively quickly. It would not be a surprise to come back after the holiday period to find it gone.

And the main shifts over this period will likely be the fall in short rates. So our table below will lose most of the highlights for 5% rates.

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 in the background, the Deposit Compensation Scheme (DCS) is getting organised by Treasury and the Reserve Bank. It will be in effect in about seven 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. However, we think there is downside coming for six month and ome-year Kiwi Bond rates, and upside for the two and four year rates.

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 keep slowly being whittled back from now on so that the changeover 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 over the past week. The background colour-code indicates 5%+ rates still available. 

for a $25,000 deposit December 4, 2024	Rating	3/4 mths	5 / 6 / 7 mths	8 - 11 mths	1 yr	18mth	2 yrs	3 yrs
Main banks
ANZ	AA-	4.25	5.05	4.90	4.75	4.55	4.45	4.35
	AA-	4.25	5.05	4.90	4.75	4.55	4.35	4.35
	AA-	4.25	5.25	5.00	4.95	4.65	4.35	4.40
	A	4.40	5.15	5.00	4.85		4.50	4.40
	AA-	4.25	5.05	5.00	4.75	4.60	4.40	4.40
Kiwi Bonds. 'risk-free'	AA+		4.50		4.25		3.75
Other banks
Bank of China	A	4.60	5.35	5.20	5.00	4.75	4.55	4.45
China Constr. Bank	A	4.60	5.15	5.00	4.90	4.75	4.55	4.50
Co-operative Bank	BBB	4.15	5.15	4.90	4.80	4.60	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	5.65	5.20	5.15	4.85	4.65	4.45
	A	4.45	5.20	5.05	4.95	4.75	4.50	4.40
	BBB	4.25	5.30	5.05	4.85	4.50	4.50	4.50
	BBB+	4.25	5.30	5.05	4.85	4.65	4.40	4.40