Kiwibank and ASB lift term deposit rates as interest rate expectations rise

Wednesday, 14 July 2021

ASB and Kiwibank have announced increased term deposit rates.

Kiwibank and ASB have both announced increases in term deposit rates, and ASB is also increasing rates on fixed term mortgages.

On Wednesday morning, Kiwibank announced it was increasing its term deposit rate to 1.2 per cent from 0.8 per cent for its 200-day term, while ASB is offering changes to term deposits between six months and five years.

Kiwibank senior manager for borrowing and saving Richie McLay said economists were expecting interest rates to rise in the future.

The offer was only open for a limited time, and would run out on Sunday, July 18, he said.

Reserve Bank Governor Adrian Orr has held interest rates for 16 months but this is set to change, economists say.

* House prices defy expectations to rise by nearly 30 per cent

* ASB drops first-home buyer mortgage rates

The change applied to business, PIE and Retail Term Deposits on investments $10,000 and above, while investments between $5000 and $9900 would see the interest rate increase from 0.70 per cent to 1.10 per cent.

Investments below $5000 would not be subject to increased interest rates.

ASB announced increases to both fixed term mortgage and term deposit rates.

Interest rates for six-month term deposits would rise from 0.80 per cent to 1 per cent, while five-year term deposits would increase from 1.75 per cent to 2 per cent.

Rates for six-month fixed term mortgages would increase from 2.99 per cent to 3.29 per cent, while five-year mortgages would increase from 3.69 per cent to 3.99 per cent.

ASB executive general manager of retail banking Craig Sims said the economy was proving robust and the economic outlook had improved.

“While interest rates are now increasing, they remain at historically low levels. We’re mindful that some first home buyers in particular have only ever experienced the current low-rate environment.”

ASB assessed home loan applications using a test rate that was substantially higher than current mortgage rates, to give customers the confidence they could continue to make payments if rates increased, he said.

Sims said the bank encouraged home lending customers to speak to it about their options, which could include spreading mortgage amounts over different terms to give certainty over time or making extra payments while rates are very low.

The Official Cash Rate (OCR) has been held at 0.25 per cent for the last 16 months, but bank economists from ANZ, Westpac and ASB think the rate will be increased sooner than was previously expected.

Commenting on Real Estate Institute data on Tuesday, ASB economists said ongoing strength in the housing market raised questions about whether additional measures were needed to “cool things down”.

The Reserve Bank had been holding off on raising the OCR, but it was expected the first cash rate hike would take place in November.

“We’d expect mortgage rates to start rising in advance of this, flipping what has been a tailwind for house prices into a slight headwind,” the economists said.

The Reserve Bank is due to announce the results of its monetary policy review on Wednesday at 2pm, which will provide an indication of where interest rates might land later this year.