New Zealand interest rates.

[CCdaCE]

OK, so I'm bored today. Ran across this internet CD rate in NZ.

1 year CD is 8.55%.

Too bad it's only available to residents of NZ.

<Homer voice> Mmmmmm. Interest rate porn. </Homer voice>

I guess their nasty tax rates make up for it. Anyone live there?

-CC

[DangerMouse]

I'm an Aussie in the US, so no I don't live there. Hmm your post got me curious and I checked out their Aussie rates and they are 7.00% for 2 years Term Deposit.

Interest rates are typically higher in both Oz & NZ because interest rates on loans are higher. I think home loans are running at 7.5%+.

Ing is offering 6.95% for a 1 year Term Deposit which is why we recently decided to stop worrying about the exchange rate and transferred our cash back to Australia. We figure the increased interest earnings will offset what we may or may not lose in exchange rate fluctuations.

[FinanceGeek]

In b-school years ago we were taught to believe in "interest rate parity", which fundamentally says that countries with currencies which are expected to depreciate will have to offer higher interest rates (and charge higher rates on loans) in order to attract funds.

Of course this along with "purchasing power parity", etc. are all tied in with the idea that markets are efficient, which is only true to an extent in that real world we actually reside in.

[wildcat]

Quote:

Originally Posted by FinanceGeek In b-school years ago we were taught to believe in "interest rate parity", which fundamentally says that countries with currencies which are expected to depreciate will have to offer higher interest rates (and charge higher rates on loans) in order to attract funds. Of course this along with "purchasing power parity", etc. are all tied in with the idea that markets are efficient, which is only true to an extent in that real world we actually reside in.

Take a look at Everbank Worldcurrency CDs. Seems to verify interest rate parity.

[Medit8]

I'm neither Kiwi, nor Aussie, but based in Asia, having been fortunate (due to an investment mistake) to be in a large NZD position for about 3 years now. Meant to get out a number of times, but with interest rates currently at 8% for a monthly rolled over TD, it seems like a nice "foundation investment" to offset equity volatility. I haven't found a replacement that has been as attractive, both from a currency strengthening perspective and from a yield perspective. Probably a difficult "sell" for new investors and the NZD/USD exchange rate is currently around 0.76. But I got in around 0.54.

[Thumper1]

Saw the comment about NZ interest rates. I am an American, but have lived in NZ for the past 11 years. We currently have the highest interest rates of any developed country in the world, mainly because the economy is doing so great (especially dairy farmers) and the Reserve Bank is trying to keep inflation under control. Although the official inflation rate is less than 3%, the tradeable portion, that which is produced in New Zealand, is running at 4%. You can get about 8.5% for term deposits (equivalent to CDs) from banks, and for a bit more risk get 9->10% from finance companies. Great for savers in New Zealand, but if you invest from overseas, you risk a possible decline in the NZ dollar.

[MooreBonds]

Quote:

Originally Posted by CCdaCE OK, so I'm bored today. Ran across this internet CD rate in NZ. 1 year CD is 8.55%. Too bad it's only available to residents of NZ. <Homer voice> Mmmmmm. Interest rate porn. </Homer voice> I guess their nasty tax rates make up for it. Anyone live there? -CC

I actually toyed with the idea of wiring over $5k-$10k to put in NZ CDs a few months ago (LOL...if only I had! both the exchange rate and current market performance make me wish I had done differently).

One thing that left a bad taste in my mouth is that they have a sort of asset tax on investments. You can either pay income taxes (not good for a non-resident) or a flat 'asset tax', which I think was something like 0.5% of the asset. Another problem: some banks can have their CDs qualify for the smaller asset tax, instead of having you report the interest as income taxable to NZ, but you don't know ahead of time unless you go through a variety of people to find out the answer.

Some NZ banks allow foreign CD investors, others don't. Some require you to have a savings account (again, some charge monthly fees!) in addition to having a CD. And, some ream you on the US$:NZ$ exchange, some don't even offer foreign exchange, and others are reasonable.

During my analysis, at the time (May 2007) I came to the conclusion that Westpac offered the best combination of exchange rates and interest rates and low/no fees. However, given the asset tax/NZ non-resident income tax, possibly having to file annual NZ income tax forms, report/pay US income taxes, and other potential/known fees, I passed since the interest rate advantage didn't seem to be worth it (although I was tempted by the foreign exchange potential gain as well).

Another temptation to getting the CDs was that I was strongly looking into purchasing forest partnership units. They're a great deal for NZ citizens, since you can apparently roll over your annual expenses that exceed income from the forests, and deduct it from your final harvest proceeds. However, non-citizens/residents can't carry over these losses. I was hoping that I could buy some CDs/dividend paying stocks to get income to declare to use up my annual forest losses, but it appeared that they were two different classes of income, and couldn't be offset by each other. (significant, considering that NZ takes something like 20%-30% of your gross harvest proceeds!)

[chinaco]

Quote:

Originally Posted by CCdaCE OK, so I'm bored today. Ran across this internet CD rate in NZ. 1 year CD is 8.55%. Too bad it's only available to residents of NZ. <Homer voice> Mmmmmm. Interest rate porn. </Homer voice> I guess their nasty tax rates make up for it. Anyone live there? -CC

Are the NZ Bonds and notes reflective of that rate? You could probably participate in that type of offering. Of course, the bond is going to be a bit more risky (assuming their CD is backed by the Gubmint).

[bpp3]

I have some NZ dollars in an MMF getting 7.4%, waiting for longer-term NZ bonds to offer something better. Though note that the NZ yield curve is inverted right now, for whatever that means.

[CCdaCE]

Quote:

Originally Posted by chinaco Are the NZ Bonds and notes reflective of that rate? You could probably participate in that type of offering. Of course, the bond is going to be a bit more risky (assuming their CD is backed by the Gubmint).

No idea on the rate comparison... the CD rate was just something I ran across.

-CC