Banks respond to lifting deposit rates

18:25, Mar 23 2014

Banks have hiked mortgage rates across the board, but savers salivating over an accompanying rise in deposit rates might not reap the full rewards.

Earlier this month, the Reserve Bank kicked off the first of a series of rate rises, lifting the official cash rate (OCR) from 2.5 per cent to 2.75 per cent.

Within a week, all major banks had passed the cost on to their home loan customers. The move not only affected floating rates, but also spilled over into some fixed loan pricing, which is not as closely tied to the OCR.

With $191 billion of collective mortgage debt, the central bank's tightening cycle will pack a punch for New Zealand homeowners.

On the other side of the coin, savers with $125b of money in the bank stand to gain.

However, Massey University banking expert David Tripe said banks were not as desperate for deposits as they once were. "That means there's possibly not quite as much direct pressure on them."


He said some banks might decide they did not need to be overly aggressive in the pursuit of more customer cash.

While competition would drive up deposit rates, Tripe said some banks might still choose to leave themselves "a little bit of potential future profitability".

All major banks have lifted at least some savings rates already, but there has been significant variation in the scope of the changes.

ANZ was the first to move its floating mortgage rates, passing on the full 25 basis point rise within hours of the Reserve Bank's announcement. At the same time it boosted the interest paid on its bonus saver account by the same amount.

It followed that up last week with a series of fixed-rate mortgage rises, offset by increasing term deposit rates across the board by 20 to 25 basis points.

ANZ managing director of retail and business Fred Ohlsson said five times as many of the bank's customers had money on deposit as had home loans. "It's a competitive market for both deposits and home loans and as the market leader in both, we believe in staying competitive," he said.

ASB passed the increase on to several savings accounts, with its own bonus saver product moving from 4 per cent to 4.25 per cent.

However, term deposits were unchanged.

Bank of New Zealand passed the full 25 basis points on to customers using its bonus saver product, also raising nine-month term deposits by 20 basis points and one-year rates by 10 basis points.

At Kiwibank, shorter term deposits from 30 days through to 150 days were all lifted by the full 25 basis points.

Spokesman Bruce Thompson said he expected further increases, but the timing would not necessarily be directly related to OCR announcements. "In a competitive market as the banks move, there'll be reactions."

Westpac was the last to move mortgage rates and the only one to absorb some of the cost of the rise, for customers with at least 20 per cent equity.

The bank has raised its term deposits up to 90 days by the full 25 basis points, as well as moving two online savings accounts 20 basis points higher.