Higher term deposit rates for longer terms come as banks attempt to nudge their customers away from a very short term focus. But wholesale rate levels limit what they can offer

Both Westpac and ASB have made changes to their term deposit offers.

ASB trimmed its six month rate by -5 bps to 3.50%.

But it added +5 bps to its one and five year offers taking them to 3.25% and 4.30% respectively

Westpac has also made some smallish moves.

But its very short term rate change can not be described as “smallish”. It has bumped up its 30 day rate to 1.00% from 0.35%.

However, it has cut its five month rate to 3.00% from 3.10%.

It has also cut its nine month offer rate, this one by -15 bps, to 3.35%.

And it has cut its 18 month rate by -5 bps to 3.60%.

But all its longer term changes are rises, with +10 bps being added to all rates for terms of two years through to five years.

These moves by these two larger banks fits a new pattern of changing rates by smaller amounts, often. ASB last changed its term deposit rates on April 8, 2017 while the previous move from Westpac came on May 1, 2017.

Most retail funding at New Zealand banks is for fixed terms of less than one year. The latest RBNZ industry statistics shows that local term deposit funding is stubbornly short term. Their L3 data reveals that more than 70% of all local term deposit funding is for periods of six months or less (on a “residual maturity” basis) and this is not declining; as at March 2016 that same level was 68.2%. If you look at levels of one year and less the level is now well over 90%.

Without local saver support, banks need to raise their longer maturities via wholesale funding; the professionals don’t mind the longer commitment and 63.5% of offshore wholesale funding is commited for terms longer than one year. Even local wholesale funding is about 50% longer than one year. It is only local retail investors who show extreme conservatism with their term commitment.

One rate that does stand out for savers who want a term less than one year is Kiwibank’s nine month offer of 3.75%.

Generally, today’s new bank term deposit offers are an attempt to nudge savers into slightly longer commitments, but it is likely to be a slow process.

Equivalent PIE rates have also been made.

Wholesale swap rates have fallen sharply in the past few days, and are generally lower now than at the start of 2017. Lower wholesale rates effectively cap what banks can offer retail clients for longer term rates.

Wholesale rates may be options for banks, but they are not for savers. But you can access bond rates on the secondary market, which offer liquidity in a way fixed term deposit commitments don’t. But for that flexibility, you do concede retail rate levels. Depending on how you assess risk, you may well judge the flexibility to get your capital returned when you need it via an early secondary market transaction as more important than the yield return. That is up to your personal tolerance for risk.

The benchmark ‘risk free’ return for savers are AAA Kiwi Bonds and they return just 1.75% for terms of six months and one year, 2.00% for two years, and 2.25% for four years. Any rate above that is a premium for risk. Credit ratings are one way to assess risk.

Use our deposit calculator to figure exactly how much benefit each option is worth; you can assess the value of more or less frequent interest payment terms, and the PIE products, comparing two situations side by side.

All carded, or advertised, term deposit rates for all institutions for terms less than one year are here, and for terms one-to-five years are here.

Term PIE rates are here.

The latest headline rate offers are in this table.

for a $25,000 deposit Rating 3/4 mths 5/6/7 mths 8/9 mths 1 yr 18 mths 2 yrs 3 yrs
Main banks                
AA- 3.00 3.30 3.50 3.35 3.75 3.90 4.00
ASB AA- 3.00 3.50 3.35 3.25 3.65 3.90 4.00
AA- 3.00 3.30 3.50 3.25 3.60 3.85 4.00
Kiwibank A 3.00 3.30 3.75 3.50   3.85 4.00
Westpac AA- 3.00 3.45 3.35 3.35 3.60 3.80 3.90
Other banks                
BBB 2.95 3.25 3.55 3.60 3.75 3.85 4.05
Heartland Bank BBB 3.10 3.30 3.70 3.40 3.40 3.40 3.70
HSBC Premier AA- 2.50 2.80 2.90 2.90   2.90 3.00
ICBC A 3.00 3.30 3.60 3.40 3.80 3.80 3.85
RaboDirect A 2.85 3.35 3.35 3.40 3.70 3.85 3.95
RaboDirect BBB 2.75 3.45 3.65 3.65 3.75 3.90 4.00
A- 2.75 3.40 3.60 3.65 3.75 4.00 4.05
Selected fincos                
F&P Finance BB* 3.45 3.80 4.00 4.10 4.25 4.35 4.50
RaboDirect BBB 3.60 3.95 4.25 4.30 4.35 4.40 4.45
UDC BBB 2.75 3.50 3.75 3.80 3.75 3.85 3.85
  * = the only credit rating in this review that is not investment grade.  

Our unique term deposit calculator can help quantify what each offer will net you.

Term deposit rates

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for(i=0;i

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