Interest-rate cuts hit term-deposit savers
Many older pensioners now missing out on the extras of life they used interest for
People with savings in term deposits are collectively earning billions of dollars less in interest annually than they were compared to four years ago — forcing many to tighten their belts.
Reserve Bank figures show total household term deposits were $83.5 billion in March 2017 — justless than the $84.8 billion they hit in March this year.
But the amount of interest earned on that money is vastly different. In March 2017 the average six-month term-deposit rate was 3.25 per cent which if calculated to an annualised figure across the deposits would have netted investors a potential $2.8b. Fast forward four years and the average six-month term-deposit is paying around 0.82 per cent netting savers just $700 million a year in interest.
One term deposit holder who contacted the Herald after asking for the information from the Reserve Bank said he wanted to know the figures after seeing friends being hammered by the falling interest rates.
He said the people who were funding the banks through deposits were being hit hard while at the same time the banks were starting to report higher profits again.
Last month three of the four major Australian-owned banks reported half-year profits that were significantly improved on last year after the economy bounced back from Covid much faster than expected.
ANZ’S cash profit for the six months to March rose 42 per cent to $962m while Westpac New Zealand’s
cash profit was up 98 per cent to $583m and BNZ’S rose 80 per cent to $660m.
Roy Reid, treasurer for Grey Power, said there were a lot of older people who had saved money in banks and they used the interest to supplement superannuation.
As the interest rates had fallen that has reduced the amount of extra spending money they might have.
Reid said that meant people were having to cut back on treats and restrict travel although Covid had impacted that in the last year.
“People weren’t travelling as much, not going out as much as they used to.”
Reid said the hardest part was that savers had no control over it.
“You can look for other investments. You might get a higher rate in a shaky investment but you are putting your money at risk by doing it.”
Reid said a lot of older investors had lost money in the 1987 share market crash and were wary about investing in shares now.
Recently some banks had begun to offer higher term-deposit rates but only for those prepared to lock their money in for longer periods.
In February ASB launched a fiveyear term-deposit rate paying 1.75 per cent.
Reid said he had been told by a banker recently that depositors could get a higher rate of 1.2 per cent per annum but that meant locking in the money for two years.
But he said that could be risky because if the interest rates went up savers could be locking themselves out of the opportunity to take advantage of an increased interest rate in the future.
He said Grey Power had spoken to the Government about the low interest rate issue and been to meet with the Reserve Bank three times about it, most recently in March.
“We just made the point that interest rates are affecting older people.”
While they were met with sympathy Reid said they were told it was up to the banks to set interest rates.
He believed banks could be giving more to their deposit holders but said they also had a duty to look after their shareholders.
Stephanie Clare, chief executive of Age Concern, said the rate drop was a big step for some who had depended on the higher interest rates for the extras of life.