New Zealand (BNZ) became the first big bank to lift its term deposit rates in the new year. The Auckland-based financial service provider moves ahead of its major rivals with an increase of 0.1 percentage points in its nine-month, one-year and 18-month term deposit rates to 1.8 per cent, 2.3 per cent and 2.35 per cent respectively.
According to banking expert Claire Matthews, term deposit rates are set by banks at the level they need to attract depositors in a competitive market. “They take into account out what they can lend money out for, look at their costs, and then set their deposit rates,” she said. On the other hand, returns offered by their rivals also play a crucial role when banks determine their term deposit rates.
A recent survey conducted by freelance economist Tony Alexander showed increasing calls on consumers to opt for higher-risk investments instead of relying on term deposits offered by banks. This is owing to rising inflation, which has now reached 4.9 per cent, deteriorating the value of depositor’s money. “Those on fixed incomes with money in the bank at less than 1.5 per cent could invest in higher yielding shares and funds,” one of the respondents to Alexander’s survey said. However, Alexander is of the view that it takes a lot to get households to move their money out of banks and pursue higher-risk investments.
