Don't be afraid to break the 'rules' now super low interest rates are the norm
OPINION: Holy Cow. Have you seen how much a term deposit pays these days?
No apology for the bolt of bovine astonishment, because many of us forget to pay attention to the world of compounding interest.
There is now no hiding from the fact that fixed deposits in New Zealand currently give savers a big fat zero return. That’s right, zippity-nothing.
The big Aussie banks sit at 2.5 per cent for a range of terms. Pay your tax at 17.5 per cent and it leaves a net rate of 2 per cent. Check out the Consumer Price Index and 1.9 per cent of that is being eaten up by price rises – good old inflation. We are left standing still. Those on higher tax rates are going backwards.
In retirement, things are getting painful. Investing in term deposits means you are protecting the purchasing power of your money and no more.
In stark contrast to this, New Zealand shares shot up over 30 per cent in 2019 (including dividends), the only place you can get a cash return of one tenth of this (3 per cent) is at the Indian multinational, Bank of Baroda (branches in Auckland and Wellington) for a term of four years.
The better known ASB, Westpac, ANZ, BNZ and Kiwibank are all clumped around 2.5 per cent. Local building societies like the Heretaunga can take a bow for its 3.2 per cent two-year fixed rate.
Kiwis have $185 billion stashed in deposit accounts. Quite a proportion of our 750,000 pensioners will rely almost entirely on term deposit income, so if you are one of those feeling the pain you’re not alone.