The headlines feature the falling home loan interest rates. But term deposit rates are now falling just as fast, maybe even faster.<\/p>\n
Many banks, both major and challenger, are cutting rates to savers, especially term deposit rates.<\/p>\n
In fact, we are now on the verge of some term deposit rates falling below 3%. Most 30 day rates are down there already, some below 2%. But now 3 and 4 month rates look about ready to join them in this very low territory.<\/p>\n
4% rates are now a distant memory. But there is still one from a bank lingering on – the 4.35% six month ‘special’ from SBS Bank. No other bank has a 4% rate for any term out to 3 years. And among the big banks, only BNZ has a 4% rate for a five year term.<\/p>\n
The landscape has shifted to now where our table below will highlight those rates below 3% with a pink background.<\/p>\n
Among the banks, Bank of China has the highest 3 month rate at 3.40%, SBS’s 4.35% is the standout six month rate. The highest nine month rate is Rabobank’s 3.60% rate. For 12 months, the highest bank current offer is also from Rabobank at 3.65%. Demand for deposits with a fixed term longer than one year is tiny with few savers enticed into this zone. But if you really would like to go long, BNZ’s 4.00% five year rate is still available.<\/p>\n
In the DCS-covered non-bank sector, none of the community institutions now offer 4% rates, and even among the finance companies with DCS coverage, 4% rates are rarer although four of the seven of these still have some over 4%.<\/p>\n
We should also note that the practical risk-free benchmark of Kiwi Bonds, which are directly guaranteed by the Government (not through the DCS), now have sub-3% rates.<\/p>\n
The risk is still that there is downside for term deposit rates at present. Certainly if the New Zealand economy’s struggles extend, it is hard to see loan demand picking up requiring banks to raise more funding.<\/p>\n
It does not help that CPI inflation is now at 3% and household living costs are rising faster, especially some components like electricity and rates. After-tax term deposit rate returns just cannot complete with those living cost pressures. It’s not much fun being a saver at present. “Investing” in renters is currently a surefire way to lose twice (with falling rents and falling capital values). So the alternatives that can possibly supply inflation and tax-paid gains are now with the funds management sector.<\/p>\n
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.<\/p>\n
Use the calculator at the foot of this article to see the differences.<\/p>\n
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<\/a>. Not all institutions 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.<\/p>\n 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.<\/p>\n
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