KPMG: Longer term deposits the way to go

Much of the activity in the term deposit market is still in the 90-day area. However KPMG notes, in its latest annual survey of the banking sector, that there are some good rates for depositors willing to go to, say a two-year term.

ASB Bank is offering 9% for that period – and others are offering 8.9% or near to it. Few economists expect the 90-day rate to be anything like 9% in April 2010.

"Most of the retail bank funding is still less than one year – a lot is still 90 day money," says KPMG deputy chairman of financial services Godfrey Boyce.

"As an investor, there is that opportunity and given the safety of term deposits, it's a pretty attractive proposition."

What is driving the rise is the need for banks to source more funding from within New Zealand than they have done previously. Somewhere between 30-50% of bank lending has been financed from offshore, Boyce says. With offshore investors getting jittery, the banks are turning more aggressively to the local market.

Westpac Bank economists also noted this week the flip side to the credit crunch – its good news for people with money they don't mind keeping in the bank.

The recent interest rate rises have come at a time of no change in the Reserve Bank official cash rate – "risk has been repriced and expanded bank margins. It has been a boon for depositors."