Term deposit interest rates have fallen, and one fund manager says it’s encouraging people to look at what other options might be available.
The average rate for a one-year term deposit, according to the Reserve Bank, has fallen from almost 6.1% at the peak to about 4.3%.
Reserve Bank data showed the number of term deposits fell between November 2024 and February although the amount invested increased marginally.
Dean Anderson, founder of Kernel Wealth, said many savers were not seeing value in locking their money away in a term deposit at present.
Some were turning to cash funds from fund managers instead, he said, which tended to have a higher yield than an on-call account.
“Compared to February, there has been a rise [in March] in the amount of applications going towards our Cash Plus fund.
“A few scenarios – investors being cautious and using a cash fund as a holding spot, potentially drip feeding into the market over time. The other is investors who may be coming out of term deposits and looking for a higher yield, with the flexibility of a cash fund. They aren’t locked in, meaning they have much greater flexibility for decision making.”
He said Kernel’s cash plus fund had a 6% return in the year to February 28.
Ana-Marie Lockyer, chief executive at Pie Funds, said lower interest rates tended to push people to look for higher return options.
“When interest rates fall and term deposits become less attractive, investors tend to consider taking on more risk. A few years ago, when term deposit rates were above 6%, many saw them as a solid return and stayed put. Over time, we have seen that narrative start to change and with term deposit rates now in the 4s, we’ve seen more investors exploring alternative options.”
At Milford, head of KiwiSaver Murray Harris said he had seen quite a bit of movement from term deposits into funds in the past 12 months.
He said people making that move needed to take a long-term view and stay the course provided the fund they chose was the right one for them.
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