Savers set to feel more pressure as rates fall

A cut in interest rates may be good for those who borrow money, but it means some leaner times for those with $146 billion saved in New Zealand banks. Photo / NZ Herald

New Zealand's savers look set to be squeezed even more after the Reserve Bank today cut the official cash rate again.

While mortgage-holders are benefiting from all-time low home loan rates savers have been watching their returns dwindle.

Reserve Bank data shows the average six month term deposit rate was 3.55 per cent in August - the lowest since June 1966.

And yet Kiwis have got a record amount of money in the bank - $146 billion.

Major bank ASB dropped its saving interest rates across a range of products on Tuesday ahead of the widely expected cash rate cut.

Its Fastsaver account will now pay 1.9 per cent down from 2.15 per cent.

David Tripe, a banking expert with Massey University, said today's rate cut meant savers could face even more pain.

But he said while interest rates were hitting new lows the saving grace for people was low inflation.

"Because we have got low inflation things are not as bad."

Inflation or the increase in the cost of goods and services was just 0.3 per cent last quarter.

Typically it has averaged around 2.7 per cent annually since 2000.

Five ways to make your savings go further

• Shop around - your bank might not be offering the best rate available. Check out www.interest.co.nz to compare rates
• If you don't need instant access consider putting some on a term deposit
• If you are saving for a house or are close to retirement consider putting the money in your KiwiSaver account in a low-risk conservative fund
• Consider what you need the money for and whether it might be appropriate to buy some dividend paying shares or an managed fund which pays an income
• If you have a large amount of money in the bank, such as several hundred thousand, get some professional advice on where to put it to get a better return.

Tripe said during the 1970s people with money in the bank found it even harder as inflation was higher than the interest paid on savings meaning their money was not keeping pace with the cost of living.

Tripe said if inflation did rise it was likely the Reserve Bank would beginning increasing the official cash rate again prompting banks to also lift their rates.

Grey Power treasurer Roy Reid said despite there being low inflation older people were being faced with more belt-tightening.

"If they are using that [money in the bank] for additional income that will cut spending."

Reid said the cuts could add up to quite a lot if people had a big sum in the bank.

Even with rates falling Reid doubted many people would move their money from banks.

"I can't see the elderly shifting their savings too far."

See Video - Business editor Liam Dann and senior journalist Jamie Gray on the implications of today's Reserve Bank move: