A market leading offer by Kiwibank comes at a time all banks, especially the large ones, are under pressure to raise vast amounts of new capital over the next few years

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Kiwibank not only kicked off the year with a mortgage rate change, it is one of the first with a term deposit rate change as well.

And Kiwibank has released a 3.55% one year rate that is market leading, a rise of +5 basis points.

However, it has also trimmed -10 bps from its six month rate, taking it back to 3.35%.

Most banks are deposit-funded so these costs are the primary driver of bank margins. And these rates very much limit how low mortgage rates can go. To go lower, that will mean that deposit rates will have to be cut and there are no signs yet that that is imminent.

Yes, wholesale swap rates are low and near record lows at the short end (one and two years). But apart from the four large Aussie banks, no others have significant wholesale funding. And even the Aussie-owned banks have less than 15% of their funding from wholesale sources.

One big and relatively new pressure these big four banks face is the need to raise large volumes of capital. Both the Australian, and separately the New Zealand bank regulators are realising the risks are unreasonable with our banks being so highly leveraged. That means banks will need to raise significant capital over the next few years. Their demand for this will raise their cost of capital, so they will bring new pressures to the market for ‘higher rates’, whether they be in the equity markets, the overseas “private placement market” or in local wholesale and retail funding markets.

Kiwibank itself also has unusually low levels of loss-absorbing capital, even lower than its Aussie rivals.

To be sure, there is a lot of funding around looking for places to invest, but the scale of what banks will need (up to A$83 bln in Australia, and another NZ$20 bln in New Zealand), this is likely to keep interest rates elevated above where they might otherwise go from the competition effect alone.

Back in the here-and-now, generally Heartland Bank, and Chinese retail bank ICBC, offer the highest rates over most durations. Today’s Kiwibank offer is an exception, pushing them to the forefront on a key rate offer.

And rates on offer in New Zealand are significantly higher than those available from the same institutions in Australia.

Rates in the table below are the highest offered by each institution for the terms listed. You however will need to check how often interest is credited or paid. That important factor is not filtered in the above table and rates with various interest payment/credit arrangements are mixed here. However, our full tables do disclose the offer basis.

Our unique term deposit calculator can help quantify what each offer will net you.

All carded, or advertised, term deposit rates for all financial institutions for terms of less than one year are here, and for terms of one-to-five years are here.

Term PIE rates are here.

The latest headline rate offers are in this table.

for a $25,000 depositRating3/4 mths5/6/7 mths8/9 mths1 yr18 mths2 yrs3 yrs
Main banks        
ANZAA-3.003.253.403.403.453.503.60
ASBAA-3.003.253.403.453.453.503.65
AA-2.903.253.253.403.403.453.55
KiwibankA2.953.353.403.55 3.553.70
WestpacAA-2.953.253.353.403.453.503.65
Other banks        
BBB3.003.203.303.353.403.503.60
Heartland BankBBB3.253.353.503.503.603.703.80
HSBC PremierAA-2.602.902.902.90 2.903.00
ICBCA3.103.403.403.503.603.703.80
RaboDirectA2.803.303.303.303.353.403.45
RaboDirectBBB2.903.153.203.453.453.603.70
A-2.903.153.203.253.453.503.65
Selected fincos        
FE InvestmentsB 4.80 4.505.405.505.60
Liberty FinanceBBB-3.603.954.254.304.354.404.45
UDCBBB2.853.253.403.453.453.503.60

Term deposit rates

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