NZ Herald 3 May 2014

AOuch! I’m not sure that every bank in town would say that I’m always kind to them.

Anyway, good question — which I put to David Chaston of www.interest.co.nz, a website that lists current interest rates on term deposits as well as other investments and loans.

First, the background. After three years of no changes, the Reserve Bank has raised the official cash rate (OCR) twice in recent weeks, firstly from 2.5 to 2.75 per cent on March 13 and then up to 3 per cent on April 24. This has led to rises in some mortgage rates — at the time of writing from ANZ, ASB, BNZ, Co-op, Kiwibank, TSB and Westpac, says Chaston. But what about term deposits?

“After the March 13 OCR increase, ANZ almost immediately raised most of its term deposit rates and a key bonus saver rate by the full 0.25 per cent,” says Chaston.

But he adds an important point. “While this was welcome, for the one-year term — which is about as long as most Kiwis want for a term deposit — the ANZ move only really took them back up to where their rivals were already.”

He continues, “After the March OCR rise, there were some other minor rises, but apart from ANZ most increases were less than the full 0.25 per cent. This left ANZ very competitive for terms of 18 months and more.”

Since April 24, however, there’s been some further action.

“ANZ again raised its bonus saver rate but no term deposit rates,” says Chaston. And ASB increased term deposit rates. “But they are minor ones affecting 1–5 month terms only, and only bringing their old rates up to where everyone else was before the April increase. They are not market setting or leading increases.” Also, Kiwibank increased some term deposit rates.

Things heated up in the last few days, though. By my deadline, RaboDirect had raised 6-month and one-year rates by 0.15 percentage points, and BNZ had raised some rates by 0.15 to 0.25 percentage points. And there were further late-week changes from Kiwibank and Westpac.

Looking back, I asked Chaston whether banks usually raise rates on deposits after they raise mortgage rates.

That’s hard to answer, he says, because the OCR hasn’t risen since 2010. But “back then, yes, both mortgage rates and term deposit rates did tend to rise in unison, usually the full amount, although there was more of a lag for term deposit rates than mortgage rates.”

However, he adds, “Today, things are quite different. Many other dynamics are at work.

“There are some tough realities savers need to face up to. Low-risk term deposits will probably never earn the unusual returns of the 2005–2008 period. That was the aberrant time, not now.”

Among new challenges, Chaston lists the following:

• “The OCR will only ever influence very short-term rates — 3 months to 6 months. One year and longer are more influenced by international money costs. These are not going up.
• “New Zealand banks are flush with cash. And it’s not international cash; increasingly its local cash saved by households. Banks have more money coming in than they can lend. Believe it or not, Reserve Bank data show clearly that household deposits are growing at about 10 per cent per year while mortgage lending is growing at just over 5 per cent per year. No matter what you may think of bankers, if they can’t lend out their incoming cash you can’t expect them to pay more for it.
• “The world is awash in money. New Zealand has products the world wants. That means New Zealand banks can source very cheap international money even cheaper because of our high exchange rate. Savers should at least be thankful they can buy many things far, far cheaper than if they were made locally.”

He adds that, “Cheap international money might go away eventually, but it is unlikely to be in our lifetime! (Mine at least.) Don’t wait for that to happen. Just be pleased you are not a Japanese or American term deposit saver getting a paltry 0.2 per cent on your term deposit.”

AI’m not so keen on compulsory KiwiSaver. As I’ve said since KiwiSaver started, I don’t think a government should force people to save in a certain way. While it’s hard to find other savings that would beat KiwiSaver — because of the incentives — some people have good alternatives, such as paying down high-interest debt or setting up and running a business.

A great feature of KiwiSaver is the automatic enrolment when someone gets a new job. It nudges them towards saving. And I like National’s plan to extend auto-enrolment to all employees, to catch those who haven’t changed jobs in recent years. But, importantly, it would preserve the right to opt out after a few weeks.

Another concern about compulsion is whether it obliges the government to somehow guarantee KiwiSaver.

Without a guarantee, if people’s savings are slashed in a market crash, they may be angry with a government that forced their exposure to that risk.

But if there were a guarantee, it could cost taxpayers heaps. Furthermore, everyone would choose the riskiest KiwiSaver funds, knowing that on average those funds perform best, and with a guarantee there would be no downside risk.

Perhaps the government could guarantee only low-risk KiwiSaver funds. But that would distort people’s choices, discouraging riskier investment with its higher long-term growth.

It’s tricky stuff.

AMum and Dad — as well as non-parent — investors come in several shapes and forms.

There are those like you who bought their Genesis Energy shares directly, through the General Offer. Others got theirs through sharebrokers, via the Broker Firm offer. And many more indirectly bought their shares through their investments in KiwiSaver and other managed funds that purchased the shares.

About 24 per cent of the shares (compared to 18 per cent in the Meridian share offer) were sold through the General Offer, and another 31 per cent through the Broker Firm offer, says a Treasury spokesman.

The total for these two categories was similar to the allocations in the Mighty River Power and Meridian Energy offers. But — perhaps of more interest to you — the allocation to the General Offer was, in fact, increased.

Because people wanted to buy more shares than were available, “Significant scaling was required across all investor groups including broker clients and institutions,” says the spokesman. “And the initial allocation to broker clients was further reduced by 20 per cent, with these shares re-allocated to the General Offer.”

What about those who received many tens of thousands of shares? Treasury says 661 received 30,000 or more shares. The majority of those shares were allocated to “New Zealand and overseas investment institutions, who invest funds on behalf of their clients, many of which will be ordinary New Zealanders,” — including KiwiSavers.

The spokesman adds that a smaller percentage of Genesis Energy shares was allocated to overseas investors than in previous share offers.

You point out that some of the big buyers apparently sold their shares straight away. But presumably they thought it was the best move for their funds. In any case, says Treasury, “the 1.62 million shares sold in the first few days is 0.3 per cent of the shares that were allocated in the share offer.”

Clearly you’re cross because you received a lot fewer shares than you wanted. Your allocation of 3226 shares — or $5000 worth — was the cap applied to all General Offer applications.

At the risk of making you crosser still, the scaling might have done you a favour. It’s not wise to put more than a few per cent of your savings into any single share. So, unless you have retirement savings of $1 million or more, a 30,000 Genesis shareholding — costing $46,500 — would have been pretty risky.

Next week we’ll look into the tax ramifications of people selling shares right after they are listed.

AThanks for a good idea — one of several, which I’ll run over the next few weeks. Thanks, too, to the three experts who offered to discuss the reader’s situation directly with her. I’ve forwarded your emails.