Hunt for higher term deposit rates
Investors who have been getting ‘‘rubbishy’’ returns on savings are hunting around for higher interest rates following the Reserve Bank’s biggest ever hike in the official cash rate last week.
The Reserve Bank Te Pūtea Matua raised the OCR by an unprecedented 75 basis points to 4.25% last Wednesday and signalled further hikes ahead.
While that portends pain for mortgage borrowers, it offers hope to savers who have weathered years of low returns.
Since the announcement, there has been a surge of activity from people looking for term deposit rates on financial comparison site MoneyHub, a leading indicator for investment decisions.
‘‘We have been floored by the number of people looking for term deposits,’’ MoneyHub founder Christopher Walsh said.
As of yesterday morning, searches for term deposits were up 122% on normal levels, he said.
‘‘The media is reporting a record high rise in the OCR and people react to that, thinking: I’ve got this money sitting in a rubbishy savings bank account and I’ve never done anything with it because the interest rates have been too low to lock it away ... People are now thinking: It’s actually worth me spending a little bit of time researching,’’ Walsh said.
‘‘What we haven’t seen yet is anyone move the interest rates.’’
Still, he said it was ‘‘early days’’, and it usually took time for banks to adjust their settings.
‘‘A 75bp increase is going to at some point flow on to term deposit customers, otherwise they wouldn’t be very happy,’’ he said.
Walsh was hopeful banks would adjust their rates in the four weeks before Christmas, although it might not be until the new year.
‘‘It would be great if people could lock in their money before Christmas and spend less.’’
Infometrics chief forecaster Gareth Kiernan said term deposit rates had been rising fairly consistently through this year as the
Reserve Bank had been pushing up the OCR and expectations of where that heads in the future had been rising as well.
According to MoneyHub’s list of the top term deposits available now, The Co-operative Bank had the best one- to five-year term interest rate of 5.5%.
SBS Bank, Rabobank, TSB and
Kiwibank offered 5%, while Heartland Bank offered 4.7%.
‘‘Given last week’s statement, and that expectations are still tending to be revised upwards, there is probably still another percentage point or maybe one-anda-half percentage points on those to go yet,’’ Kiernan said.
Term deposit rates had been incredibly low through 2020 and 2021, which had prompted investors to look at other assets such as property and shares, he said.
While rates had risen this year, inflation was accelerating faster at 7.2%, even before tax was taken into account.
‘‘It has been a very difficult environment.’’
People tended to move towards the perceived safety of investments such as bank term deposits in uncertain economic environments, Kiernan said.
Over the next year, inflation should start to ease, which would improve returns.
But they were still not going to be fantastic, he said.
‘‘It’s difficult to see any other sort of serious alternatives at the moment, given the pressure there has been on particularly property prices, and to a lesser extent on sharemarkets more recently.’’
Kiernan said the downturn in the housing market meant banks might not be motivated to attract a lot of funds from depositors. ‘‘You’re probably not going to see massive levels of competition.’’