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Bank term deposit rates are so low savers can’t be bothered putting savings in


Bank term deposits interest rates have fallen so far, savers can’t be bothered shifting money into them from their zero-interest transaction accounts, independent economists Brad Olsen and Shamubeel Eaqub say.

Since the Covid-19 pandemic hit households have spent less, and saved hard.

But Reserve Bank figures show savers have been so unimpressed by term deposit rates, they are leaving their money on call in zero interest accounts.

In February last year, just as the first case of Covid-19 was identified here, New Zealand resident savers had $171 billion in term deposits at the banks.

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By the end of February this year that had fallen to just $143b.

But people were not pulling their money out of banks to pump into shares, which have raced away as interest rates were cut.

Reserve Bank economists explain why they think housing inflation is almost over.

At the same time resident savers were pulling $28b out of term deposits, they amassed an extra $29b in their savings accounts and an extra $35b in their transaction accounts.

Simplicity KiwiSaver chief executive Sam Stubbs said bank customers were getting a “c… deal” because banks had such a tight grip on the deposit market.

“The saver struggles to identify the difference between almost nothing, and nothing, so they think they might as well have the cash on hand,” Stubbs said.

Infometrics senior economist Brad Olsen says term deposit rates may not be high enough to reward savers for the trouble of locking up their money.

Bejon Haswell/Stuff

Infometrics senior economist Brad Olsen says term deposit rates may not be high enough to reward savers for the trouble of locking up their money.

Eaqub said weak term deposit returns had been eroding use of term deposits even before Covid-19 forced central banks globally, including New Zealand’s Reserve Bank, to drive down interest rates to stimulate flagging economies.

New Zealand Bankers’ Association chief executive Roger Beaumont said interest rates had been at historic lows for some time because the cost of funding was low.

“In short, money is relatively cheap at the moment. That’s driven by a number of things, including the all-time low official cash rate, set by the Reserve Bank, which is currently at 0.25 per cent. Other factors include the cost of overseas funding, and Reserve Bank initiatives to increase the supply of money.

BNZ has the best one-year term deposit rate from any of the banks, but it is still just 1 per cent.

Chris McKeen/Stuff

BNZ has the best one-year term deposit rate from any of the banks, but it is still just 1 per cent.

“Low interest rates may influence how people manage the money they have in the bank,” Beaumont said.

“They may be less likely to secure their money in a term deposit because of low interest rates. They may prefer to keep their money more freely available in a transactional account. They may also be moving their money to higher risk investments that may attract greater returns.”

Cutting interest rates had helped keep unemployment and defaults on loans low, but Olsen said bank term deposit returns were now so low that they were in effect paying negative real interest rates.

Independent economist Shamubeel Eaqub says the huge amount of money in zero-interest transaction accounts raised questions about whether banks were looking after their customers.

Supplied

Independent economist Shamubeel Eaqub says the huge amount of money in zero-interest transaction accounts raised questions about whether banks were looking after their customers.

“Inflation came out last week at 1.5 per cent. You’re losing money on a real basis in term deposits,” he said.

A one-year $10,000 term deposit at ASB, Westpac or ANZ earns interest of 0.8 per cent.

BNZ just edged up its one-year term deposit rate to 1 per cent, but Kiwibank cut its rate to 0.85 per cent.

Shorter-term interest rates are even lower, with big banks paying 0.35 per cent or less annual interest on 90-day term deposits.

The amassing of cash in the bank by households was a reflection of lower spending during the first year of the Covid pandemic, Olsen said.

Not only were households who usually holidayed overseas prevented from going, but in nervous times,…



Read More: Bank term deposit rates are so low savers can’t be bothered putting savings in

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