NZ economic growth: Term deposits, OCR and the NZ Dollar?

Canstar has rated term deposits from 9 providers in New Zealand for the 2016 Bank of the Year Award – Term Deposits.

There’s no denying that the marriage of interest rate and savings has been a rocky one of late but, with the Reserve Bank of New Zealand’s latest monetary policy review, the outlook is a bit brighter for Term Deposit savers.

Before we get into the ever-changing Term Deposit environment, here’s a breakdown of how changes to New Zealand economic growth lead into impact on the return on interest rate and savings.

New Zealand economic growth:

How low dairy prices are affecting the market

Dairy prices

This time last year, the cash rate was at 3%, however, in the past 12 months, the cash rate has lowered by 100 basis points. On 11 August, The Reserve Bank of New Zealand lowered the OCR by 25 basis points to the current rate 2%, a record low for New Zealand.

Fluctuations around New Zealand economic growth, particularly in declining sales of dairy exports, contributed to the decision for recent OCR movements. Other reasons include:

  • Global inflation remains low
  • Increase in financial market volatility
  • Weakened growth in developing world
  • Ongoing concerns about China
  • Uncertainty in emerging markets
  • Low prices for commodities such as oil
  • House price inflation in Auckland
  • Unemployment rising to 6% in February 2016 (Statistics New Zealand), the first increase in three years.
  • Low dairy prices

It’s important to keep in the back of your mind that the lowering of cash rates generally means bad news for savers. But an unusual twist of events means welcome news for savers

NZ dollar rises despite OCR cut

Despite the Reserve Bank’s best efforts to temper the strength of the New Zealand dollar – partly in a bid to renew overseas buyers’ interest in our export products – the New Zealand dollar has actually seen a rise. At the time of writing, the New Zealand dollar is sitting at 72.08 USc, up from 71.5 USc the previous day. This rise in the New Zealand dollar is unusual, as currencies tend to weaken after central banks cut their cash rates, because lower rates tend to decrease the inflow of foreign capital.

New Zealand economic growth – in the form of a rising currency – has also been boosted by strong immigration and tourism.

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So what does all this mean for your interest rate and savings?

What does this mean for interest rate and savings

The cash rate might be sitting at a low of 2% but banks have responded rather uncharacteristically this time around, with four out of five of the major banks boosting Term Deposit rates.

Despite some uncertainty around New Zealand economic growth, including what will happen to the overheated property market, Term Deposits can actually provide a safe haven when looking at the interest rate and savings. So, while term deposits are not at the high rates they have been in years gone by, the inflation rate is still low. This means that savers are effectively ahead on their money!

Financial institutions are also making the process of opening a term deposit easier, with full online applications or the ability to open an account via mobile phone available.

The hard work starts when weighing up your options and comparing which products provide you with the best return.

How have term deposit rates changed?

How have term deposit rates changed

With the majority of the major banks boosting Term Deposit rates, it is more important than ever to look at what is happening in the New Zealand market and to compare rates and providers.

Here’s a breakdown of Term Deposit interest rates and savings have changed since OCR cut

Before OCR Announcement After OCR Announcement
  • Up to 3.30% Term Deposit Interest Rate
  • Increase of up to 0.30% to 3.60%
  •  3.30% per annum for 18-month Term Deposit Rates
  • Increase of 0.30% on 18-month Term Deposits to 3.6%.
  •  3.20% interest on 18-month Term Deposit
  • Increase of 0.45% per annum for 18-month Term Deposit to 3.65%
  • No change to Term Deposit rates
  • No change to Term Deposit rates
  • 3% for six-month Term Deposit
  • Increase of 0.50% to 3.50% for six-month Term Deposit

While this might look like great news for all savers except Kiwibank customers, Kiwibank has actually placed itself competitively in the home loan space – passing on the full rate cut to customers. Read more on Kiwibank’s move after the OCR cut here.

 Compare Home Loans Interest Rates


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