Bank Deposit Rates - April 2011

We note that deposit rates at banks have receded recently in the wake of the decision by the Reserve Bank to reduce the Overnight Cash Rate by 0.5%. We are also hearing that banks are finding it difficult to expand their lending at present. This all points to deposit rates remaining low, and maybe going lower, for the remainder of 2011.

At current levels money on deposit at banks is losing value. If we look at a rate of say 4.6% for 12 months the return after tax (at an average rate of 25%) becomes 3.45%. Inflation for the year to December 2010 was 4.0%. Given the expected persistence of the effects of the GST increase and recent food and fuel price inflation we expect inflation for the next 12 months to remain in the 3.0-4.0% band. This means a loss of real purchasing power.

While there is a role for retaining some funds in the bank there is a real cost to doing so at the present point in time. We hear concerns about the safety and security of other investments. These are not without some foundation but are somewhat exacerbated we feel by recent geological and political events. We are continuing to find a reasonable number of sound ways to obtain returns that are better than those at the Bank. Please ring us on 07 578 3863 or 0800 867 323 if you would like to improve your returns.