NZ Savings Accounts suck, what to do ....... Is it property boom causing?

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Forums › Finance and wealth management › NZ Savings Accounts suck, what to do ....... Is it property boom causing?

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#1678236 27-Nov-2016 13:04

As others have been saying, in the post global financial crisis (GFC) world, NZ's interest rates are actually high compared to many other first world countries.

Put your money in a kiwibank 1 year term deposit at 3.6% interest rate and be grateful.

Regarding the property market, (other than the subprime crisis in the USA that started all the GFC mess), the causation is the other way around. Low interest rates are adding fuel to the fire that is our housing market.

Our economy has relatively low inflation. The reserve bank drops interest rates to discourage saving, and encourage investment (in economic terms this means the buying of capital goods by businesses), to encourage growth.

However these low interest rates make mortgages more palatable, and hence people are willing to bid more on housing. Many would be a world of pain if we went back to 2007 mortgage interest rates of 10%+.

TeaLeaf

6325 posts

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#1678284 27-Nov-2016 13:52

Fred99:

IMO economists missed or underestimate the "human nature" impact on this. We'll see some time how clever this idea was.

Interest rates will go up. How soon and by how much is unknown. These are not normal times.

We poured too much into covering ourselves from GFC fall out.

Completely agree, greed. As for interest rates, hopefully to 18% again :-p

re Overseas banks, Ummm yeah I already said earlier some euro countries you pay them to put your money in the bank, not an unknown fact

dafman

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#1678288 27-Nov-2016 14:07

billgates:

India has one of the highest interest rates on term deposits. Last year it got up to 12% and now it's around 7.50%. Not sure how easy it is for a Non-Indian to open an account in India but I have dual citizenship so it was relatively easy. Ofcourse inflation is higher there compared to NZ so for overseas dual citizener's it's a bonus.

http://www.bankofindia.co.in/english/RupeeTermDeposit.aspx

A quick warning with this, it's a bit of a gamble. It's not just the interest rate that is important here, but also the New Zealand dollar / Indian rupee exchange rate. You might earn more interest in rupee, but if the value of the New Zealand dollar rises against the rupee over the same time, you could effectively lose out when converting back to New Zealand dollars.

mattwnz

20164 posts

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#1678297 27-Nov-2016 14:38

Banks seem to be lifting rates a bit at the moment. Not sure how some people with these huge mortgages are going to cope if rates go too high. I read a story of someone who owns a property in Auckland with a huge mortgage, who only has 80 dollar per week left over after all expenses are paid. That isn't a big amount of money to play with if the rates rise too much. Have to wonder if banks should have lent so much money out, especially as the experts have been saying that there is a property bubble. People also need to rememebr that in NZ we have no deposit insurance, and I don't believe you can buy a policy either even if you wanted such insurance for you savings, which is odd, considering you can insure almost everything else. . So money in the bank isn't without risk of losing it.

wellygary

8328 posts

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#1678316 27-Nov-2016 15:04

dafman:

billgates:

India has one of the highest interest rates on term deposits. Last year it got up to 12% and now it's around 7.50%. Not sure how easy it is for a Non-Indian to open an account in India but I have dual citizenship so it was relatively easy. Ofcourse inflation is higher there compared to NZ so for overseas dual citizener's it's a bonus.

http://www.bankofindia.co.in/english/RupeeTermDeposit.aspx

A quick warning with this, it's a bit of a gamble. It's not just the interest rate that is important here, but also the New Zealand dollar / Indian rupee exchange rate. You might earn more interest in rupee, but if the value of the New Zealand dollar rises against the rupee over the same time, you could effectively lose out when converting back to New Zealand dollars.

Yip, there is a long term devaluation of the INR going on , since 2000, its gone from 1 NZD = ~19 Rupee to around ~45 rupee now, so you would have needed 7.5% annually just to stay equal to the NZD ( and that is exc any taxes in either India or NZ, (despite there being a DTA)

https://www.google.com/finance?q=NZDINR&ei=Ez06WKHvD4mv0ASYibfABg

surfisup1000

5288 posts

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#1678324 27-Nov-2016 15:21

Fred99:

Hence the concern about the possibility of a "GFC II" if it turns out that the asset backing for housing loans are another house of cards.

Fascinating to see how it all turns out. Some are making pretty serious bets against the global economy.

The face value of money has dropped considerably compared to say 15 years ago. At least, I was able to easily afford a house when I first began working in the 90's. If i had to start today, no way.

TeaLeaf

6325 posts

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#1678325 27-Nov-2016 15:22

mattwnz: Not sure how some people with these huge mortgages are going to cope if rates go too high.

for sure, happened before, will happen again, but kiwis are like sheep (no aussie jokes please) they follow the flock, investors dont.

Say you have $600k borrowed, thats about $860 (depending on your rate) a week over 25 years (.... that). And you have about $120k invested as deposit. $720k house, in a very average suburb.

Lets be conservative in a crash and lets say 10% pa, you now owe $1250 odd a week (.... that).

Now lets look at worst case (well it could be worse Im not sure) 18% $2100 per week.

Lets say you are a middle class earner of $75k with a student loan still, you take home $991 in your hand a week. And we no for sure incomes arent rising, less than inflation Id suspect.

Now unless you can fit 3-4 immigrants into your house to help with the rent (who needs to build houses if the RE pops lol), you are going to default lose your $120k and not have credit for a very long time.

Sustainable?

Sobering.

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surfisup1000

5288 posts

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#1678328 27-Nov-2016 15:27

mattwnz:especially as the experts have been saying that there is a property bubble.

The problem with experts is that they can reach opposite conclusions using the same data.

Plenty of them say this is not a bubble, just check Aucklands huge immigration influx. Auckland back in the early 90's was a european/maori city.

Today, it feels more like an asian city.

Things change.

Fred99

13684 posts

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#1678332 27-Nov-2016 15:39

surfisup1000:

Fred99:

Hence the concern about the possibility of a "GFC II" if it turns out that the asset backing for housing loans are another house of cards.

Fascinating to see how it all turns out. Some are making pretty serious bets against the global economy.

The face value of money has dropped considerably compared to say 15 years ago. At least, I was able to easily afford a house when I first began working in the 90's. If i had to start today, no way.

I agree that the face value of money has dropped considerably more than official inflation rates suggest that it should have dropped.

Reason for this is mainly that we've imported lower cost production of so much basic "stuff", electronic or whatever, cars etc, even food, due to both improved productivity through technology and/or shifting of production to lower wage economies.

Some of the "other" inflation - housing cost isn't included in official measures. Buy some goods or services that are 100% local, pay a lawyer's or dentist's bill, your power bill, or buy a kg of snapper fillets, and then you see local inflation in effect. $15.75 / hour might be okay to live on in this country - if all you needed was basa fillets from Cambodia at $10/kg and your rent and power bill had only been going up by 1-2% per annum.

TeaLeaf

6325 posts

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#1678382 27-Nov-2016 16:10

The problem I see coming is, we dont produce anything. Milk and lamb, yay NZ !

In some ways we need a Helen Clark mixed with Mr Trump.

Build Small Business, buy NZ made no matter the cost and soon enough the cost drops and you have quality products employing Kiwis, made in NZ boosting our economy and possibly exported.

See my other thread for a post about living out of Auckland and sustainable cities via Tesla Factories and sustainable energy and Satelite cities.

MikeB4

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#1678417 27-Nov-2016 17:16

For everyone that gets high interest on deposits there are families that struggle due to high interest rates on borrowing. The current situation is fine.

afe66

3181 posts

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#1678419 27-Nov-2016 17:22

My UK account which was 2% when opened 10 years ago is now 0.05%.....

Not going to close it. Has a couple of hundred pounds in it.

(_Never_ close a UK account if you ever think you'll want it again. Next trip will transfer funds and use a uk EFTPOS)

dafman

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#1678450 27-Nov-2016 18:24

MikeB4:

For everyone that gets high interest on deposits there are families that struggle due to high interest rates on borrowing. The current situation is fine.

It ain't fine. The current situation punishes savers and rewards spenders and borrowers. Remember in the past it used to be the other way around?

Because of spenders and borrowers, global banks are carrying unsustainable high levels of debts which, to date, they have been able to shift deck chairs to postpone the inevitable (ie. large-scale losses on debts that cannot be repaid).

We now have massive asset bubbles because artificially low interest rates have driven investors to take on high levels of risk with housing and shares to chase an acceptable level of return.

Time will tell, but I'm reckoning the future ain't bright.

mattwnz

20164 posts

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#1678463 27-Nov-2016 19:03

surfisup1000:

Things change.

Exactly, and things will keep changing. Thesethings seem to run in cycles, and you have booms and busts. It wasn't that long ago when we had a brain drain in NZ, and our population was losing people. I think the Jury is out whether NZ is a better country with higher levels of immigration. Our infrastructure hasn't kept up eg. not enough houses, congested roads (has got worse over the last 10 years), waiting lists with health care(although very difficult to know if it is now worse)

mattwnz

20164 posts

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#1678465 27-Nov-2016 19:08

dafman:

MikeB4:

For everyone that gets high interest on deposits there are families that struggle due to high interest rates on borrowing. The current situation is fine.

It ain't fine. The current situation punishes savers and rewards spenders and borrowers. Remember in the past it used to be the other way around?

Because of spenders and borrowers, global banks are carrying unsustainable high levels of debts which, to date, they have been able to shift deck chairs to postpone the inevitable (ie. large-scale losses on debts that cannot be repaid).

We now have massive asset bubbles because artificially low interest rates have driven investors to take on high levels of risk with housing and shares to chase an acceptable level of return.

Time will tell, but I'm reckoning the future ain't bright.

Exactly, it isn't fine at all. All low interest rates really do is push up house prices, as people can 'afford' to borrow more, as the low interest rates mean it is easier to service a high mortgage. But interest rates can only go so low, and it appears we have now reached that bottom as the OCR cuts aren't resulting in lower mortgages. Infact banks are needing more depositors money, so have increased some longer term interest rates. But I wonder if that will filter down to online bonus savings account. The government should be wanting people to save, not spend, as we are a richer country if we save. You just have to look at Asians countries, they are great savers, and are now investing throughout the world, and it is no wonder why many of these countries are now so rich. It is one reason why our preopty market has been so attractive to offshore investors.

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