Savers weighing where to park cash face a shifting landscape as term deposit rates edge upward across New Zealand. While short-term rates follow central bank adjustments, financial experts urge depositors to balance liquidity needs against inflation, warning that standard returns often fall short of rising living costs.
Term deposit rates might have a bit further to increase, but savers should ask themselves whether it is really the right place to put their money. As interest rates have risen, term deposit rates have inched up according to Reserve Bank data.
How Term Deposit Rates Shifted Across the Market
In October last year, the average two-year rate sat at just over 3.5 percent, while the average five-year rate was just under 4 percent. Now, those rates stand at 4.17 percent and 4.66 percent, respectively. Shorter terms have moved far less across the banking sector.
The six-month rate remained flat over the period, while the one-year rate picked up from 3.5 percent to 4 percent according to the Reserve Bank data. Over that same timeframe, the official cash rate dropped from 2.5 percent to 2.25 percent before lifting back to 2.5 percent. That benchmark rate faces its next review next month.
Individual institutions adjusted their offerings in response. BNZ moved its one-year rate to 4.05 percent and its 30-day rate to 1.85 percent. Meanwhile, the Bank of China lifted its two-year rate to 4.3 percent.
Expert Outlook on Volatile Swap Rates and Inflation
Market watchers anticipate further upward movement for short-term deposits if the official cash rate climbs. Squirrel chief executive David Cunningham said he expected the interest rate on short-term deposits to increase if the official cash rate did.
Predicting the wider financial environment remains a challenge for analysts.
“The underlying swap rates have been pretty volatile and US long-term interest rates have been pretty volatile as well.”
Chris Tennent-Brown, senior economist at ASB
If the Reserve Bank proceeds with lifting the official cash rate as expected this year, that policy shift should flow through to higher short-term deposit rates and shorter-term mortgages. While popular retail rates are likely to move, long-term term deposit rates depend more heavily on inflation expectations and long-term borrowing costs both domestically and abroad.
“There are a lot of moving parts … we’ve got new things we wouldn’t have been thinking about a week ago with the US Treasury Secretary talking about changes to the duration of the US mortgage market to try to get longer-term rates down there.”
Chris Tennent-Brown, senior economist at ASB
Tennent-Brown added that consumer fears regarding inflation bounce around as much as oil prices do, setting up an unpredictable financial horizon.
Matching Deposit Strategy to Personal Financial Horizons
Choosing a term deposit requires savers to weigh their immediate cash access against long-term growth goals. Depositors locking away funds need to verify that a fixed term aligns with their broader financial strategy.
“If you don’t need the money for five or 10 years it’s probably worth having some conversations about whether there are better places to be than in a term deposit. Growth and inflation protection are key there. Inflation is still running ahead of what those popular short-term deposit rates are. So working out a strategy to beat that is really important.”
Chris Tennent-Brown, senior economist at ASB
For individuals saving toward a concrete near-term purchase, liquidity overrides the hunt for higher yield.
“But if it’s money for a deposit on a house that you’re planning on buying over the next six months, then you just need that liquidity.”
Chris Tennent-Brown, senior economist at ASB
In these instances, prioritizing immediate access to funds is more practical than seeking long-term growth through more complex investment strategies.
