Savings not just debt in focus as interest rates tumble

Savers are expected to need additional support to find a new home for their rainy day funds as term deposit rates continue to slide.

Friday, November 29th 2024, 8:36AM

by Kim Savage

The RBNZ cut the OCR by 50 basis points Wednesday while signalling a further cut in February, prompting major banks to lower both mortgage and term deposit rates further.

Milford Asset Management’s head of KiwiSaver and retail Murray Harris expected to see the flow of savings out of term deposits and into managed funds continue as rates slipped lower.

“Certainly we’ve seen quite a significant increase of flows into our cash and our low risk funds and we're just assuming that's money that's coming from term deposits, which was it a year ago? You were getting six and a half percent. Now you're getting four and a half.”

While savers were unlikely to want to lock-up their rainy day funds in KiwiSaver, lower interest rates did have benefits for scheme members’ balances, he said.

“In general, falling interest rates are good for bonds and the bond market. And obviously the KiwiSaver funds benefit from that, from their exposure from those markets, and then falling interest rates are also good for equity markets.”

“So, it's been an extraordinary year in terms of performance on the back of falling interest rates.”

Fisher Funds’ Chief Client Officer Nilesh Mistry said there should be more of a focus for consumers on what a falling OCR means for their savings.

“Kiwis are drawn to the stability of a term deposit, and rates in recent years have made returns relatively attractive.”

“However, as rates drop, term deposits can struggle to keep pace with inflation, ultimately eroding the purchasing power of your hard-earned money," he said.

Nilesh Mistry said managed funds were a compelling alternative in today’s financial climate, offering savers flexibility to withdraw or adjust their investments as their needs or market conditions change.

Tags: Milford Asset Management