Like rust, inflation never sleeps

Things are looking up for savers – but many New Zealanders still have their money in savings accounts, where it is being eaten away by inflation.

Interest rates are starting to lift, and banks are competing for local deposits to fund lending. That means term deposit rates on offer are improving after a long period of historic lows.

‘‘As banks continue to increase their focus on the domestic market to raise funds, we’re seeing a growth in savings and term deposit interest rates,’’ said Jose George, general manager of research firm Canstar.

‘‘In particular the shorter term deposit rates, up to periods of two years, are now at levels we’ve not seen since mid-2015.’’

George said the current average rate for six-month term deposits was 3.37 per cent. Term deposit rates had increased by up to 65 basis points, he said. Twoyear rates are now available for an average 3.79 per cent, compared to 3.6 per cent in January.

But savings account interest rates have not moved. Most banks offer 0.1 per cent interest for on-call savings accounts, or special rates of between 2.2 per cent and 2.5 per cent when customers do not make withdrawals, or commit to regular contributions.

The inflation rate is currently 2.2 per cent, which means only those in the bestpaying savings accounts are even earning enough interest to keep their money worth the same amount in real terms.

Everyone else with money in the bank is effectively going backwards.

There was $148.4 billion in bank accounts in May, compared to $164b in term deposits. That’s a small change from the $150b in bank accounts and $156.8b in term deposits in January.

Banking expert Claire Matthews said there were a number of reasons people might leave their money in a savings account.

‘‘One is that they don’t have the minimum amount required to be able to put their funds into a term Matthews said.

‘‘The minimum is generally $5000, but in reality the minimum is $10,000 to get term deposit rates that are better than savings account rates.

‘‘The second is that they want to retain the ability to access the funds oncall.

‘‘Generally, to get term deposit rates that are better than savings account rates, there is a need to make the deposit for at least 90 days and better rates are available for terms over six months.

‘‘Even though the funds may remain in a savings account for much longer than six months, the depositor may prefer to have the certainty of access on demand, rather than having to wait until a future maturity date.’’

There would also be a proportion of savers who had not got around to moving their money, she said.

If you know you will not need the money for some time, a managed fund is another option to provide better returns over time. deposit,’’