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Savers savour the rise of the OCR

ROB STOCK
Last updated 05:00 16/03/2014
Piggybank piggy bank
GOOD PIGGY: Term deposits are like the 'strict parents' of saving.

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The rise in the official cash rate - the first in six years - brings hope to savers that rates on popular short duration term deposits will become fairer again in the near future. Currently some term deposit rates on offer are still less than that for savings accounts.

The period of low interest rates New Zealand savers have had to cope with following the global economic crisis has left them grumpy, even as debtors have enjoyed bargain-priced borrowing. But financial research company Canstar says relief is on the way for depositors, who have over $108 billion invested in bank term deposits.

In a report on New Zealand's term deposit market, Canstar said while term deposit rates went up a little over the Christmas period, the increases tended to be for longer terms such as one year to five years. That meant investors with shorter terms, who form the majority of depositors, didn't benefit.

When the report came out on Wednesday it said savings accounts were currently offering slightly better rates (4 per cent versus 3.85 per cent) with the added bonus of being able to access the money as soon as you want it.

But with official interest rates on the rise and the Reserve Bank moving the cash rate up by 25 basis points on Thursday, term deposit savers should start to see better rates emerge. At least one bank had lifted its deposit rates by late last week.

Term deposits could once again be the "go-to" for investors, Canstar said, providing the rates follow through. The Reserve Bank has indicated the OCR could rise by a further 200 basis points over the next two years.

The Canstar report coincides with it awarding Kiwibank the title of term deposit taker of the year based on analysis of the returns to depositors as well as value-add services on offer.

Kiwibank won praise for consistently good rates along with services such as allowing people to apply online, and email and telephone reminders to depositors when the term was nearly ended.

Canstar described term deposits as "the strict parents of saving". "You're not allowed access to your money for your own good!"

The pros of term deposits are they have traditionally paid higher rates than savings accounts for terms of a year or over, that the rates are locked in providing certainty, and that access is restricted which reduces the likelihood of the saver being able to squander it before the term matures.

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- Sunday Star Times

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