New Zealanders should take a second look at term deposits

New Zealanders should take a second look at term deposits - Canstar

With lingering low interest rates hitting investment returns and investor sentiment, Canstar says term deposits are still a successful and reliable tool for savers.

In awarding Kiwibank the Bank of the Year for term deposits, for the sixth year in a row, Canstar says New Zealanders should take a second look at term deposits, particularly those looking to save for a specific long-term purchase such as renovations, holidays or other larger items.

General Manager, Canstar New Zealand, Jose George says, a term deposit’s ability to effectively lock money away for a period of time, while delivering a predictable, low-risk return eliminates the temptation to spend the money on something else over time.

“Let’s face it, it’s easy to dip into our savings here and there when a sale is on or to purchase a treat for the kids. But those small withdrawals can and do add up, significantly affecting our ability to purchase the bigger things later,” says Mr George.

Canstar says Kiwibank stood out as a clear leader in term deposits once again due to the market-leading features such as a full online application for new and existing customers, no requirement to have a linked account, options to receive maturity reminders via mail, phone or email and a market leading prepayment interest penalty of 2% if the investment is withdrawn early.

Kiwbank also offers competitive rates across all terms considered within Canstar’s methodology.

Mr George says those considering utilising a term deposit to save should first decide what is an appropriate term for the deposit based on the rates available.

“Usually you receive higher returns if you invest for a longer term, however, that benefit might be eroded if you need to access your money before the term is up.”

According to Mr George, the ability to produce a predictable return also makes term deposits a desirable tool for investors who are risk averse or cannot absorb the fluctuations experienced by other investment vehicles such as the share market. Reliable returns also mean term deposits remain a low risk tool to balance an investor’s overall investment portfolio.

“With global political uncertainty not showing any signs of abating we might see demand for term deposits from investors increase in the coming months as well.”

For further information and a full list of term deposits considered in the 2019 Canstar Term Deposits Award, please visit the Canstar website.

What you should consider when looking for a term deposit

It’s a given that we want the best possible rate of return on our savings and term deposit accounts tend to offer higher interest rates than every day and on-call accounts. By following a few simple steps before you invest, you can make your money work even harder.

Shop Around. Online comparison site such as canstar.co.nz enable you to compare interest rates and types of term deposit accounts from a variety of providers. A simple exercise that takes minutes but can result in a healthy increase in your returns.

Negotiate, negotiate, negotiate. If you already have investments or accounts with the provider, or you are looking to invest a large sum of money, a higher rate of return could be negotiated.

Rates are usually advertised ‘per annum’, not the term of your deposit. If your term deposit is, say, six months, adjust your calculations accordingly to see what kind of returns you can expect.

Split your investment. Sometimes referred to as ‘laddering’ this is where you split your investment across two or more funds to take advantage of higher interest rates for some of your savings, but a shorter term and easier access for a portion of it.

Check your provider’s term deposit terms and conditions. Check the details of how the interest is calculated and any conditions or penalties you may incur if you withdraw the deposit early.

What’s your tax rate? If you are on a 30% or 33% tax rate, speak to your provider. A PIE fund investment, which attracts a maximum tax rate of 28%, may be a more beneficial investment option for you. Talk to your bank or financial adviser about what is best for your individual situation.

ENDS

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