Mortgage, savings rates rise despite Official Cash Rate cut


The rise in mortgage and deposit rates is a reminder they are not always directly linked to the Official Cash Rate.

Kiwibank and Westpac yesterday became the latest banks to hike some of their savings rates.

Westpac is also about to follow several of its rivals and increase some mortgage rates.

Banks have been lifting some rates despite the Reserve Bank cutting the Official Cash Rate to 1.75 percent.


The OCR is the rate of interest which the Reserve Bank charges for an overnight loan to a commercial bank.

But mortgage and savings rates are determined by other factors.

New Zealand banks borrow money from offshore and from New Zealand savers to lend to people who want a mortgage.

Right now the banks are finding it harder to attract money from New Zealand savers, because as rates have fallen more people are opting for other investments like shares and property.

At the same time global interest rates are rising, due to the uncertainty from events like Brexit and the US election, as well as the expectation that inflation will lead to higher interest rates.

So now the banks are having to compete harder for savers' money, by offering better term deposit rates.

It is worth noting that although Kiwibank lifted some longer term deposit rates yesterday it trimmed the rates for some of its shorter duration deposits. Other banks like BNZ have done the same recently.

That shows the banks are trying to incentivise savers to lock up their money for longer periods of time. That will then give the banks more certainty when they lend the money to borrowers.


One tip for savers is that if they have money in a term deposit they should resist the temptation to simply let the bank roll it over. Instead they should talk to someone at the bank to make sure they are being offered the best rate.

It is also a good chance to shop around and see what the other banks are offering. This applies to mortgages too.

Savers should also be wary of locking all of their money up in a longer term rate. That is because interest rates could rise even further.

One strategy is to "ladder" the deposits, by splitting them up into several sums that are invested for different periods of time.

It is similar to the strategy of splitting a mortgage into several fixed-term loan periods.

Borrowers will be tempted to lock in a mortgage right now for as long a period as possible.

But mortgage advisors say that it is also important for borrowers to make sure they think about factors like break fees, before they switch mortgages.