Interest earnings on term deposits down billions
WELLINGTON: People with savings in term deposits are collectively earning billions of dollars less in interest annually than four years ago, forcing many to tighten their belts.
Reserve Bank figures show total household term deposits were $83.5 billion in March 2017 — just a tad lower than the $84.8 billion they hit in March this year.
However, the interest earned on that money is vastly different.
In March 2017, the average sixmonth term deposit rate was 3.25%, which if calculated to an annualised figure across the deposits would have netted investors a possible $2.8 billion.
Fast forward four years and the average sixmonth term deposit is paying about 0.82%, netting savers just $700 million a year in interest.
One term deposit holder who contacted The New Zealand
Herald after asking for the information from the Reserve Bank said he wanted to know the figures after seeing friends being hammered by the falling interest rates.
He said the people who were funding the banks through deposits were being hit hard while at the same time the banks were starting to report higher profits again.
Last month, three out of the four major Australianowned banks reported halfyear profits that were significantly improved on last year after the economy bounced back from Covid19 much faster than expected.
Grey Power treasurer Roy Reid said many older people had saved money in banks, and they used the interest to supplement superannuation payments.
As the interest rates had fallen, that had reduced the amount of extra spending money they might have.
Mr Reid said that meant people were having to cut back on treats and restrict travel, although Covid19 had affected the latter.
The hardest part was that savers had no control over it, Mr Reid said.
‘‘You can look for other investments.
‘‘You might get a higher rate in a shaky investment but you are putting your money at risk by doing it.’’
Recently, some banks had begun to offer higher term deposit rates, but only for those prepared to lock their money in for longer periods.
In February, ASB launched a fiveyear term deposit rate paying 1.75%.
Mr Reid said Grey Power had spoken to the Government about the low interest rate issue and met the Reserve Bank three times about it, most recently in March.
While the organisation was met with sympathy, Mr Reid said it was told it was up to the banks to set interest rates.
The Reserve Bank was vocal last year about banks needing to bring their mortgage rates down but has had much less to say about deposit rates.
A Reserve Bank spokesman said the broad intent of monetary policy in recent times had been to provide support to the economy in response to Covid19 by lowering interest rates.
‘‘The Reserve Bank primarily influences wholesale interest rates in the economy.
‘‘Retail interest rates such as mortgage rates and term deposit rates are set at a margin above these wholesale rates.’’
He said it was up to banks to make commercial decisions about how much interest they pay on term deposits, in a competitive market. —