Term deposits: Kiwibank offers outstanding value

Term deposits: Kiwibank offers outstanding value

CANSTAR releases its 2015 Term Deposit Award report today, researching and rating nine banks to determine which offer outstanding value for consumers through their suite of term deposits.

Rate chasing seems to have become a national sport among those intent on channelling the most interest possible into their term deposits. While it is obvious that pursuing the highest interest rates on the market will bump up your bottom line, just how much better off will you really be in the long run?

To work out exactly how much ahead a rate chaser would be, compared to a customer who simply rolled a term deposit over at the same bank, CANSTAR pitted the two strategies, using $10,000, to see what would happen.

CANSTAR looked at two hypothetical scenarios:

• One customer chasing the best rate and moving $10,000 every 90 days for the past three years – but with a two day gap in terms each time, and
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• One customer staying put at the one institution.

Firstly – rate chasing…

The rate chaser did come out ahead over the past three year period – but only just. Actively chasing the highest term deposit rate every 90 days for three years, with a two-day down time between each term, netted our hypothetical saver a total of $1,172 interest, giving a total balance at the end of three years of $11,172.

Being loyal…

In comparison, the loyal customer had cash in hand at the end of the 3-year term of $11,139. In other words, $11 per year less in interest on a $10,000 deposit. Does it make it worth the effort of switching?

“The extra interest that you could potentially earn by rate chasing will depend on the amount you’re investing, of course,” said CANSTAR General Manager–New Zealand, Derek Bonnar. “An extra thirty-three dollars over three years, for me, wouldn’t be a compelling reason to switch. It might be for others though.”

CANSTAR’s research into term deposits is not just a case of comparing rates. There’s no doubt rates are the key driver behind the attraction of term deposits to investors or those saving for a goal. However there are other factors which CANSTAR takes into consideration with its research that heighten the consumer’s experience with a particular institution’s term deposit process.

“As well as interest rate it’s important to consider factors such as whether or not there’s a need to open a separate account with that institution, as well as the way the term deposit maturity is handled and notice conveyed to the customer,” said Mr Bonnar. “Then there are the interest options, plus the ease of rollover facilities or processes for monies moving into or out of the bank.”

CANSTAR has assessed the interest rates and account features of term deposits across nine financial institutions to determine which institution offers outstanding value in the term deposit market. This year, once again, we couldn’t go past Kiwibank.

“As far as interest rates go, Kiwibank is King with the top rate of 4.42% for both $10,000 and $50,000 over the five to seven month brackets that we assessed,” said Mr Bonnar. “In fact, the bank pays out in excess of twelve basis points above the industry average in these timeframes.”

Alongside the pricing score, CANSTAR said that Kiwibank earned the highest feature score.

“There are a lot of things to like about their term deposits. For instance, up to twenty percent of the principle can be withdrawn at any time during the term with no penalty,” Mr Bonnar noted.

Other features of appeal, according to CANSTAR, are a full online application process for new and existing customers, with a 7-day variation period. Switching over your money at maturity time to another bank is no problem and can be done free online.

“Kiwibank has now won CANSTAR’s Term Deposit Award three out of the four times it has been presented. We congratulate them on this achievement,” Mr Bonnar said.

Consumers can download the full range of term deposits researched by CANSTAR at www.canstar.co.nz

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