Another week, more term deposit rate cuts led by some large & some challenger banks. The arrival of sub-4% rates spread, and rate inversions narrow

No bank now offers a 5% term deposit rate.

And increasing numbers of banks have started offering rates below 4%, mostly for the three month term. That includes ANZ, ASB, BNZ, Heartland, and Kiwibank. The appearance of term deposit rates starting with a '3' is a new development and is sure to spread to longer terms. Kiwibank already has a 3.90% offer at a four month term.

On Monday morning we've had rate reductions from ASB, BNZ, Heartland Bank, and Rabobank. They are unlikely to be the last.

Across the main banks, Westpac has the highest overall rate card at present, Kiwibank the lowest overall rate card.

Across the challenger banks, ICBC has the highest overall rate card, Rabobank the lowest.

These relative positions are sure to change often and soon. Unfortunately for savers, the direction is only lower.

And the reason is clear; weak loan demand means banks can pay less for customer deposits and avoid having to go to wholesale markets. Paying less for savers' deposits also allows them to protect their margins. The shoe is on the other foot when loan demand rises; they then have to scramble to raise funds in such a way that their core funding ratio is maintained and their mismatch ratios stay within regulatory requirements. But in a weak and falling market, none of these are pressure points for banks, only for savers who must suffer the consequences.

A quick check of the swap rate charts below, especially the one-year swap rate, shows this wholesale funding benchmark has been pretty stable since the end of 2024. The current 3.5% level has been within a +/-20 basis points (bps) range for more than 65 days now. Without weak loan demand and the resulting scramble for market share in a zero-sum environment, rates offered to savers would not be falling.

Another feature of the current term deposit rate set is the fading of the inverted rate curve. Shorter term rates are falling faster than longer term rates. They are still inverted, hinged at the six month term, but the six month premium over a one year term is back closer to only 10-20 bps now.

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, and below 4% rates now appearing.

for a $25,000 deposit February 24, 2025	Rating	3/4 mths	5 / 6 / 7 mths	8 - 11 mths	1 yr	18mth	2 yrs	3 yrs
Main banks
ANZ	AA-	4.00	4.40	4.35	4.20	4.15	4.10	4.15
	AA-	4.00	4.35	4.40	4.20	4.10	4.05	4.25
	AA-	4.00	4.40	4.35	4.30	4.20	4.30	4.40
	A	3.90	4.40	4.15	4.25		4.10	4.10
	AA-	4.10	4.55	4.65	4.40	4.40	4.40	4.40
Kiwi Bonds. 'risk-free'	AA+		4.00		3.75		3.75
	Rating	3/4 mths	5 / 6 / 7 mths	8 - 11 mths	1 yr	18mth	2 yrs	3 yrs
Other banks
Bank of China	A	4.40	4.90	4.75	4.70	4.65	4.45	4.45
China Constr. Bank	A	4.25	4.90	4.70	4.65	4.55	4.45	4.40
Co-operative Bank	BBB+	4.15	4.70	4.60	4.50	4.40	4.35	4.40
Heartland Bank	BBB	4.10	4.70	4.60	4.50	4.40	4.40	4.45
ICBC	A	4.30	4.90	4.75	4.70	4.60	4.45	4.40
	A	4.15	4.60	4.45	4.35	4.40	4.25	4.35
	BBB	4.25	4.85	4.75	4.60	4.40	4.40	4.40
	BBB+	4.15	4.60	4.55	4.40	4.40	4.40	4.40
Non-Bank Deposit Takers	Rating	3/4 mths	5 / 6 / 7 mths	8 - 11 mths	1 yr	18mth	2 yrs	3 yrs
Community institutions
First Credit Union	BB	4.25	5.00	4.80	4.70	4.60	4.50
Heretaunga Bldg Society		4.30	4.90		4.70		4.50
Nelson Building Society	BB+	4.40	4.10	4.05	3.90		3.80	3.85
Police Credit Union	BB+	4.20	4.80	4.70	4.55	4.40	4.20
UnityMoney	BB	4.25	4.75	4.55	4.45	4.25	4.20	4.15
Wairarapa Bldg Society	BB+	4.05	4.50	4.80	4.75	4.50	4.30
Finance companies
Christian Savings	BB+	4.25	5.00	4.90	4.85	4.65	4.45	4.45
Finance Direct			3.95		6.50	5.90	6.00	6.10
General Finance	BB	4.55	6.05	6.15	6.25	6.00	5.75	5.50
Gold Band Finance	BB-		3.75	3.75	6.40	6.20	5.75	5.75
Liberty Financial	BBB	4.25	5.85	5.65	5.50	5.00	5.00	4.90
Mutual Credit Finance	B+				6.50	6.50	6.75	6.25
Xceda Finance	B+		6.00	5.80	5.70	5.60	5.50	5.00