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Term deposit rates might have fallen, but people with money in the bank may still be getting a better return, in real terms, than they have in recent years.
ASB senior economist Chris Tennent-Brown said only the short-term deposit rates out to nine months were still above their 20-year averages, and they could be expected to drop further this year.
"ASB's term deposit interest rates for amounts over $5000 are between 4.05 percent and 4.55 percent for terms between 90 days and six months, and between 4.2 percent and 4.45 percent for terms between nine months and five years. For the popular term deposits - short terms up to one year - a key influence is what the RBNZ does with the official cash rate (OCR). "
Tennent-Brown said even if the OCR pulled rates down further, real investment returns after inflation were positive and should remain so.
He said even though rates had come down a long way, they were "still pretty reasonable".
He said he had been forecasting for a while that they would settle in the 3.5 percent to 4.5 percent range, which was what had happened.
"The rates are quite a long way ahead of inflation at the moment which was not the case when rates were nominally much higher. If that continues, the real return investors are getting stays quite good compared to when they were earning 6 percent but inflation was knocking at rates higher than that."
He said it probably made sense for people to take longer term deposits if they could, although it was not comfortable for many savers.
"People value flexibility and the shortest terms always seem to be more popular than the longer terms."
He said laddering term deposits could become more common again, where people had a series of deposits coming off fixed terms at different times.
"So people have something maturing fairly regularly… they try to tap into longer terms with a few term deposits rather than just the one. What really matters is not the nominal rate but what they get after tax and inflation."
That meant it was important that the Reserve Bank did its job of getting inflation back in check, he said.
He said people with longer-term objectives could consider whether other investment options might suit them better. There tended to be more interest in managed funds during periods when term deposit rates were dropping, he said.
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