Why Term Deposit Rates Are Dropping With Mortgages
From Aaron’s YouTube: “Term Deposit Rates Down #newzealand #firsthome #kiwisaver ##nzfirsthome #nzmortgage #homeloan #asb”
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Posted 16 September 2024
The short version
- Term deposit rates fall when mortgage interest rates drop.
- Term deposits are more popular with older generations than younger ones.
- Most younger Kiwis don't use term deposits as a savings strategy.
- Term deposit rate changes are linked to broader interest rate trends.
Why term deposit rates follow mortgage rates
When mortgage interest rates drop in New Zealand, term deposit rates usually follow. This happens because banks set term deposit rates based on what they can earn from lending that money out as mortgages.
If banks can only charge lower interest on mortgages, they naturally pay less interest on term deposits. This connection means savers feel the impact whenever mortgage rates change.
Who still uses term deposits?
Aaron points out that term deposits are much more common among older generations. Most Kiwis under 50 don't use term deposits as their main savings strategy, especially when saving for a home.
Younger Kiwis often prefer savings accounts they can access quickly or investment options with higher potential returns. Term deposits lock money away for a fixed term, which doesn't suit everyone's goals.
What term deposit rate drops mean for you
If you're saving for a home deposit, term deposit rate drops make these less attractive. You'll earn less interest while your money is locked away, which could slow your savings timeline.
For older Kiwis relying on term deposit income, rate drops reduce their returns. It's worth discussing alternatives with a mortgage adviser if your savings strategy depends on term deposits.
This is general information, not personalised financial advice. For advice on your situation, talk to Aaron.
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