Banks innovate in short-term rates

After a week’s breather, short-term deposit rates from banks came under focus once again but this time it is for a short period.

Monday, December 6th 2010, 6:07PM 1 Comment

by Sophia Rodrigues

Rabobank via RaboDirect drove the innovation with the launch of BankaRate where it offered special interest rates across all terms. The best rate was the 6% on six-month deposits for a minimum amount of $5,000. The offer was snapped up within few hours of opening, prompting the bank to reintroduce but with minimum amount of $20,000 and then to $25,000.

The BankaRate specials attracted investors towards only short-term deposits with longer-term attracting very minimal deposits. For example, the 6.70% on four-year deposits with minimum amount of $5,000 managed to get subscription for just 6% of the total amount the bank put on offer.

Kiwibank quickly followed RaboDirect with its own BookaRate on one and two-year deposits. At 5.50% on one-year deposits, the specials are offering 20 basis points over Kiwibank's regular rate of 5.30%.

Finance companies were active last week with a few making downward moves to interest rates while Finance Direct was an exception when it increased across maturities starting from six months to five years.

Finance Direct raised six month deposit rates by 50 basis points to now offer the best rate of 7.25% among finance companies. But as the company is not rated, investors are left to make their own judgement about the safety of their investment. Finance Direct's 10.50% on 18-month deposits is the best on offer for a minimum deposit of $1,000.

PGG Wrightson made a slew of cuts, but most of them were concentrated in non-guaranteed debentures while six-month term rates were hiked by 25 basis points. With the changes, the BB-rates PGG Wrightson's rates for both guaranteed and non-guaranteed deposits hardly look attractive compared with the AA-rated UDC Finance or the BB+ rated Marac Finance.

In fact, UDC Finance has just reduced rates across all the terms, and only increased 12-month rate where it is now offering 5.50%, just above Kiwibank's 5.30% on regular deposits and in line with its 5.50% BookaRate deposits.