2015

The ability to lock away money in an investment that pays a regular amount of interest has always held a certain appeal, typically among the more conservative investors seeking safe haven from the stormy seas of the stock market. Term deposits are also a useful vehicle for those saving for a long-term goal – real estate purchase, holiday or whatever – because of the added benefit that locking your money away removes the temptation to spend.
In today’s low-rate environment, it’s important to get the best deal so your money is working as hard as it can. Some go to extraordinary lengths to move their money around on a regular basis to wring as much interest out of the various banks as possible.
Others take a ‘set and stay’ approach, preferring to deal with the one institution they are comfortable with.
Mitchell Watson,
Research Manager
There is no right or wrong approach to the way term deposits are used. Whatever works best for your circumstances usually is best.
There is more to term deposits than just the headline rate. The bank has to be easy to deal with by incorporating consumer-friendly features onto its term deposits. Things like access to your money without a break fee, prompt online transfer to another bank and effective notice of upcoming maturity dates are important to users of term deposits.
CANSTAR has researched 9 New Zealand banks that meet our strict criteria to find the top institution that delivers outstanding value in this area.
Term Depostis - 2015 1

Having your wealth tied up in bank term deposits remains a favoured savings strategy, due largely to their guaranteed return on investment. In a low-rate environment, the rewards aren’t great but those single digit percentages still offer a consistent return.
What is a term deposit? It’s a bank account that generally pays a higher rate of interest in return for locking your money away for a fixed period of time. The fixed time can vary and allows you to decide how long you want your money tied up.
Term deposits are useful if you’re saving up for a long-term goal. This could be a home, a holiday or a car. A term deposit is also a less volatile place than the stockmarket to park your money and, as many will attest, the process is easy – usually just one call to the bank and you’re done. There are no fees and little chance that you’ll lose your capital. This is particularly important to those who lack the knowledge about alternative investment options.
The advantage of term deposits is the very thing that could prove a disadvantage. Having your money tied up for a certain period
– from 1 month to 5 years – is a brilliant solution for the ‘spendaholic’ who is seriously trying to save for a goal and doesn’t need the constant temptation. However, putting all your dollars into a term deposit can bring on a liquidity crisis if you need money for an unexpected event. Should this happen, you may have to break your term, and perhaps be liable for a fee. You may also lose most of your interest income. Not a good outcome.
If you have some money to spare though, why not consider placing some of your savings into a term deposit account and the rest into another account so you have some money available to cover you for any unexpected expenses. That way you won’t risk having to disturb your fixed term investment.
Alternatively, you could divide up your money and put each bundle into a variety of terms – short, medium or longer. This strategy is called ‘laddering’. Its biggest advantage is that it allows you to grab good interest rates as they happen. At the moment, short term deals are very attractive and you may want to capitalise on that.
The longer you lock your money away, the better the interest rate on offer but think carefully about your investment strategy before deciding on a term.
Essentially, it’s a gamble on where you think the official interest rate will be – up or down – in four or five years’ time. It’s an each-way bet. If rates rise, you’re locked in and won’t capitalise. If they stay the same or fall, it’s happy days.
Canstar Star Ratings NZ - 2015 2

How have our term deposit rates tracked against our old sparring partner across the ditch? We put up $10,000 and monitored how much better off you would be if you invested that money in term deposits here and in Australia.
The higher cash rates in New Zealand are certainly paying dividends for cashed-up Kiwis. In fact, the Green & Gold offerings are looking decidedly poor against the All Blacks. On a $10,000 deposit, Australian financial institutions are offering between 1.49% to a top of 3.60%; relatively ordinary compared to New Zealand financial institutions which are offering a top rate of 4.60%, and a minimum rate of 2.75%. Even if Australia claws back a little in currency conversion, it’s still not a game changer.
2.75%
1.49%
3.16%
4.60%
3.60%
Source: www.canstar.co.nz Based on $10,000 Term Deposit for 1 year, non-compounding, interest paid annually.
It’s obvious that going for the highest interest you can will bump up your bottom line but is it really too good to be true? For the purpose of this exercise we set out to illustrate what it would be like to change a term deposit of $10,000 every 90 days over the last three years. We then simulated what is to be gained in two common scenarios:
• Chasing the best rate with 2 days of non-interest in between (due to moving from one bank to another).
• Chasing the best rate without losing those 2 days of interest (possibly unrealistic but good for comparison reasons!)
Let’s look at the results on the following page.
Term Depostis - 2015 3

Not surprisingly, the best result came from chasing the highest rate every 90 days for the last three years and managing not to lose any interest in the transactions. As of December last year, your $10,000 would have made $1301.38 interest, adding up to a total of $11,301.38.
The same scenario forgoing 2 days of interest at each rollover would slice close to $129 off your interest received. Those 2 days multiplied by 13 transactions add up to 26 days, or 3.5 weeks, where your money has been enjoying a holiday at your expense.
Your total in this case is now $11,172.47.
1/01/2012
31/03/2012
29/06/2012
27/09/2012
26/12/2012
26/03/2013
24/06/2013
22/09/2013
21/12/2013
21/03/2014
19/06/2014
17/09/2014
16/12/2014
Chasing the best Term Deposits without 2 days of non-interest
3.70% $10,000.00
3.70% $10,091.23
3.65% $10,183.30
4.00% $10,274.95
3.90% $10,376.29
3.90% $10,476.07
3.90%
3.70%
3.70%
$10,576.82
$10,678.53
$10,775.95
3.70% $10,874.26
4.00% $10,973.47
$91.23
$92.07
$91.65
$101.34
$99.78
$100.74
$101.71
$97.42
$98.31
$99.21
$108.23
4.00% $11,081.70
$109.30
4.00% $11,191.00
$110.38
Total $11,301.38
$1,301.38
Source: www.canstar.co.nz
Based on a non-compounding, non-redeemable, paid at maturity 90 day term deposit of $10,000 chasing the best rate every 90 days.
3/01/2012
1/07/2012
1/10/2012
1/01/2013
3/04/2013
4/07/2013
4/10/2013
4/01/2014
6/04/2014
7/07/2014
7/10/2014
16/12/2014
Chasing the best Term Deposit Rate with 2 days of non-interest
3.70% $10,000.00
3.65% $10,091.23
4.00% $10,182.05
3.90% $10,282.48
3.90% $10,381.36
3.90% $10,481.19
3.70% $10,581.98
3.70% $10,678.53
3.70% $10,775.95
$91.23
$90.82
$100.43
$98.88
$99.83
$100.79
$96.54
$97.42
$98.31
4.00% $10,874.26
4.00% $10,981.51
$107.25
$108.31
4.00% $11,089.83
$82.64
Total $11,172.47
$1,172.47
Source: www.canstar.co.nz
Based on a non-compounding, non-redeemable, paid at maturity 90 day term deposit of $10,000 chasing the best rate every
90 days with 2 days of non-interest in between each rollover.
Canstar Star Ratings NZ - 2015 4

Researching term deposits in New Zealand is not just a case of comparing rates. There’s no doubt rates are the key driver behind the attraction of term deposits to investors or those saving for a goal. However, there are other factors which CANSTAR takes into consideration with its research that heighten the consumer’s experience with particular banks’ term deposit processes. Things like the need to open a separate account with that institution, the way term deposit maturity is handled and conveyed to the customer, interest options and the ease of rollover facilities or processes for monies moving into or out of the b ank.
Yes, rates are important – and CANSTAR compares the full range from short-term to 5 years – but features are the icing on the cake.
For more information, read the Methodology section.
We couldn’t go pa st Kiwibank again this year as the bank that offers overall outstanding value in the term deposit market. As far as interest rates go, Kiwibank is King with the top rate of 4.42% for both
$10,000 and $50,000 on 5-7 month terms. In fact, the bank pays out in excess of .12% above the industry average.
Alongside the pricing score, Kiwibank earned the highest feature score. There are a lot of things to like about their term deposits.
For instance, up to 20% of the principle can be withdrawn at any time during the term with no penalty. If more than 20% is withdrawn, a prepayment penalty of 2 basis points will apply.
Kiwibank offers full online application process for new and existing customers, with a 7-day variation period. Switching over your money at maturity time to another bank is no problem. This is done free online or Kiwibank will give you a free cheque.
Kiwibank has now won CANSTAR’s Bank of the year Term Deposit award three out of the four times it has been presented. We congratulate them on this achievement.
Check out the full range of term deposits researched by CANSTAR at www.canstar.
co.nz/term-deposits/ b an
ea r
Canstar Star Ratings NZ - 2015 6

The CANSTAR Term Deposit Award involves a sophisticated rating methodology, unique to CANSTAR that compares term deposits in New Zealand. The Award aims to give recognition to financial institutions who offer quality products with desirable features to consumers looking to invest in a term deposit.
Our Award extends to all financial institutions in New Zealand with a Standard & Poor credit rating (or equivalent) of at least
BBB+.
Each term deposit reviewed for the CANSTAR Term Deposit Award is awarded points for its comparative pricing and for the array of positive features attached to the product. Points are aggregated to achieve a pricing score and a feature score.
To arrive at the total score CANSTAR applies a weight against the pricing and feature scores. This weighting of price and features reflect the relative importance to the consumer of either price or features when looking to purchase the product. This method can be summarised as follows:
92%
80%
3%
5%
20%
* Maturity Cost is the cheapest option to transfer your money to another
Financial Institution at the end of term
YOUR GUIDE TO PRODUCT EXCELLENCE
Based on six different feature categories
1

CANSTAR incorporates interest rates, terms and maturity costs into the calculation of the pricing score of the overall score.
80%
92%
3%
5%
The rate score is calculated by taking the best rate from each of the following term deposit periods (outlined in the tree below) over a span of 26 weeks. The average rate is then calculated based on the best historical rates with the lowest average rate achieving the highest possible score for that given term. This calculation is made across two term deposit amounts, $10K and $50K, weighted equally to give the final rate score.
1-4 months
15%
5-7 months
45%
50%
8-13 months
30%
18 months - 2 years
6%
Rate
50%
3-4 years
2%
5 years
2%
1-4 months
15%
5-7 months
45%
8-13 months
30%
18 months - 2 years
6%
3-4 years
2%
5 years
2%
YOUR GUIDE TO PRODUCT EXCELLENCE 2

Maturity costs include any cost associated with retrieving or transferring your funds at maturity such as the cost for a bank cheque or a direct credit into a nominated institution’s account. An institution with low or no charges receives the highest maturity cost score.
A higher S&P, Fitch or Moody credit rating attracted a higher score for its credit worthiness.
More than 40 individual product features of each term deposit are scored and contribute to the Features score. Each individual feature is categorised into six different categories in the following table and is allocated points. Based on the points received in each category, the scores are weighted against each of the category weights provided in the table below for their respective total feature score. The total feature score is then indexed to provide final feature score.
Category
Category
Weighting
Examples of data captured
Account Options 40%
Open Account, Maturity Advice, Maturity Instruct, Variation
Period
Bonus/Discounts 15% Rollover Bonus, Free bank cheque, Free direct credit
Early Withdrawals Prepayment Interest Penalty 10%
15% Interest Options
Statement Options 5%
Interest penalties, Interest payment options,
Third party reporting, Tax reporting
Term Options 15% Account Facilities, Deposit amounts, Rollover facilities
In order to calculate the Award, CANSTAR analysed nine financial institutions in New Zealand.
We endeavour to include the majority of product providers in the market and to compare the product features most relevant to consumers in our ratings. However this process is not always possible and it may be that not every product in the market is included in the rating nor every feature compared that is relevant to you.
The Award is fully recalulated every twelve months, based on the latest submissions from each institution. CANSTAR also monitors changes on an ongoing basis.
YOUR GUIDE TO PRODUCT EXCELLENCE 3

CANSTAR researches, compares and rates the suite of banking and insurance products listed below. These star ratings use similar methodologies to guarantee quality, consistency and transparency. Results are freely available to consumers who use the star ratings as a guide to product excellence. The use of similar star ratings logos also builds consumer recognition of quality products across all categories. Please access the CANSTAR website at www.canstar.co.nz
if you would like to view the latest star ratings reports of interest.
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Business deposits
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Term Deposit
Credit cards
Credit card rewards
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Home loans
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Kiwisaver
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Online banking
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Personal loans
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Savings accounts
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Transaction accounts
COPYRIGHT
© CANSTAR New Zealand Limited (3225469), 2008-2013. The recipient must not reproduce or transmit to third parties the whole or any part of this work, whether attributed to CANSTAR or not, unless with prior written permission from CANSTAR, which if provided, may be provided on conditions.
DISCLAIMER
To the extent that any CANSTAR data, ratings or commentary constitutes general advice, this advice has been prepared by CANSTAR New Zealand Limited
(3225469) FSP 200146 and does not take into account your individual investment objectives, financial circumstances or needs. Information provided does not constitute financial, taxation or other professional advice and should not be relied upon as such. CANSTAR recommends that, before you make any financial decision, you seek professional advice from a suitably qualified adviser. A Product Disclosure Statement relating to the product should also be obtained and considered before making any decision about whether to acquire the product. CANSTAR acknowledges that past performance is not a reliable indicator of future performance.
YOUR GUIDE TO PRODUCT EXCELLENCE 4

Company
ANZ Bank
ASB Bank
Bank of New Zealand
HSBC Premier
Kiwibank
RaboDirect
TSB Bank
UDC Finance
Westpac
We endeavour to include the majority of product providers in the market and to compare the product features most relevant to consumers in our ratings. This is not always possible and it may be that not every product in the market is included in the rating nor every feature compared that is relevant to you.
Report Date: February 2015
3 Months
3.50%
3.50%
3.50%
3.40%
3.75%
3.65%
3.50%
3.50%
3.50%
Investment Terms (as at 13/02/2015)
Latest Rates Click Here
6 Months 1 Years 2 Years 3 Years
4.10% 4.50% 4.70% 5.00%
5 Years
5.30%
4.15%
4.30%
4.00%
4.50%
4.35%
4.10%
4.35%
4.10%
4.50%
4.50%
4.20%
4.55%
4.46%
4.50%
4.50%
4.45%
4.70%
4.70%
4.60%
4.65%
4.72%
4.75%
4.80%
4.70%
5.00%
4.90%
4.80%
4.80%
4.91%
5.00%
5.00%
5.00%
5.30%
5.30%
5.20%
5.00%
5.38%
5.50%
5.25%
5.30%
Bonus
Interest on
Rollover
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Applicaiton
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Report Date: February, 2015 (All information correct as at 5th January 2015) Term Deposits 2015 - PAGE 1