How likely are interest rates to go up in the near future? Here’s why we predict a NZ interest rates forecast of continued low(ish) rates…
Page updated 13 August 2021
- Executive Summary
- How much will mortgage interest rates go up in 2021-2022?
- Political meddling in RBNZ independence adds to interest rate uncertainty
- The long-term trend of low interest rates
- Interest rates reach 5,000 year low!
- Central bank interest rates around the world
- Why are interest rates so low?
- Can the Reserve Bank drive interests rates back up to high levels again?
- Fixed-term mortgage interest rates today
- Term deposit interest rates today
- After-tax retirement income today
1. NZ interest rates forecast: Executive Summary.
- Low interest rates are not a short-term aberration, but part of a long-term trend says Ben Bernanke, ex-Chair of the US Federal Reserve.
- The Reserve Bank of New Zealand influences interest rates within a small band, but has less control over interest rates than many imagine.
- If the Reserve Bank drove interest rates artificially high, the economy would slow, leading to recession. Not going to happen.
- If they drove interest rates artificially low, the economy would overheat, leading to an inflationary bubble. Not going to happen.
- Instead, they dance in the middle, tweaking rates up or down a little within a narrow band.
- Interest rates are primarily driven by inflation. Where inflation goes, interest rates follow.
- Today’s low bond yields simply reflect economists’ and investors’ expectations that inflation will remain low.
- Globalisation, offshore manufacturing and increased competition are keeping prices, and therefore inflation, down.
- With inflation lacking, markets are pricing out inflation and yields are falling as a result.
- Central bank interest rates in Switzerland are -0.75%, Denmark -0.35%, Japan -0.1%, Sweden, Norway and the Eurozone (Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain) are all at 0%, Australia, Great Britain, Israel and Poland are at 0.1%, and the following countries are all at 0.25% – Canada, Czech Republic, New Zealand and USA (Global-Rates).
- Our NZ interest rates forecast is that interest rates will not fall any further this cycle and, although firming, will remain at low levels for quite some time.
- Where interest rates go, mortgage rates follow. All major banks have fixed rates well under 3% now, with special rates for low LVR loans (<80%) as low as 2.25%.
- With the primary driver of interest rates being inflation, which has remained stubbornly below target since the 2008-09 GFC and is predicted to remain low for quite some time…
- In our opinion, you’re more likely to see leprechauns dancing in your garden than a return to high mortgage rates in the foreseeable future.
- N.B. All predictions expire at midnight 😉
2. NZ interest rates forecast: How much will mortgage interest rates go up in 2021-2022?
Some people worry about investing in property because they think mortgage interest rates could go up in 2021-2022 to fearful levels.
This is understandable given our memories of high mortgage interest rates in the 80s. In fact, the 10-year bond yield hit 19.2% in May 1985!
But that was 35 years ago and we’re unlikely to see mortgage interest rates doing anything like that any time soon. (Not that we’d be distraught if they did… mortgage interest rates would only be high if inflation was high, in which case both rents and capital gains would be going through the roof!)
Instead, we are in the middle of a long-term trend of low interest rates.
Our best prediction is that we are past the bottom of this cycle. Short-term mortgage interest rates will climb slowly but still remain at low levels for the next couple of years.
Medium- to long-term mortgage interest rates on the other hand will continue firming much more quickly and strongly in anticipation of future inflation and OCR movements.
The risk is to the upside, not the downside. In plain English, interest rates will not fall any further.
If you are fixing a mortgage, now’s the time to fix it for as long as possible rather than being tempted by the candy of the short-term rates.
As we are seeing, mortgage rates start moving up first and term-deposit rates [slowly] follow.
It is obvious now that economists called it wrong. Massively wrong. They’re even making weather forecasters look good!
A slew of economic data released in February 2021 was far more positive than economists had predicted.
Unemployment dropped from 5.3% to 4.9% in the December 2020 quarter, shocking even the most optimistic economists who instead had predicted it would rise following the end of Covid-19 wage subsidies.
House building consents also hit a record high in the December 2020 quarter. New home consents were up nearly 5% compared to 2019, which is impressive considering how affected 2020 was by Covid-19 lockdowns.
On the back of better than expected economic data, business confidence bounced back strongly too.
It wasn’t until 4 February 2021 that economists finally abandoned their predictions that the Reserve Bank of New Zealand (RBNZ) would cut the OCR again this cycle – something that had been obvious to us for some time.
Bank economists then started predicting the first OCR rate hike in May 2022.
Westpac was particularly pessimistic though. In May 2021 Michael Gordon, Acting Chief Economist NZ, said the OCR would not start rising until early 2024, whilst acknowledging “market expectations which have converged on an OCR hike by around August next year”.
Once again, we thought the bank economists had it wrong. With the housing market running hot and inflation pressure to the upside, we predicted (way back in February 2021) that the first OCR rate hike would come in February 2022.
It took until mid-June 2021, when economists were once again surprised, this time by an unexpected 1.6% GDP rise for the March quarter, before ANZ brought forward its prediction for the first OCR increase to February 2022.
ANZ wrote, “We now expect the first OCR hike to take place at the February 2022 MPS, followed by hikes in the May and November 2022 and May 2023 meetings. These four hikes would bring the OCR up to 1.25% in mid-2023.” ANZ Research, 18 June 2021
That’s something we predicted and published here four months earlier.
Even now in mid 2021 with property prices still increasing at a fast clip, NZ inflation for the March 2021 quarter was only 1.5% on an annualised basis. This is bang on the Reserve Bank’s target mid-point in its 1%-3% range. StatsNZ
That means there is currently no inflation pressure to either increase or decrease interest rates. Furthermore, the Reserve Bank is under political pressure not to do anything that would further stimulate house prices.
However, there are indications that inflationary pressures are building.
ANZ’s Business Outlook of 9 June 2021 saw cost and inflation pressures continuing to intensify. Expected costs rose to a net 85.6% expecting higher costs ahead, and a net 62.8% of respondents intend to raise their prices, a record high in data that goes back to 1992.
“For context on just how spectacular that record is, the previous high before this year was 47.4% in 2000,” says ANZ.
ANZ sees inflation expectations continuing to lift. At 2.33%, they are close to the 2% RBNZ CPI target midpoint, but they’re still rising.
ANZ notes that the retail sector’s inflation expectations and pricing intentions outstrip everyone else’s by quite some margin, and retail prices weigh heavily on the consumer price index.
“Shipping disruptions, rising global commodity prices, the higher minimum wage, labour shortages due to both the closed border and uneven sector growth are creating a perfect storm for the supply side of the economy at the same time as demand is holding up much more than firms (or economists!) had anticipated,” says ANZ.
Headline inflation is set to jump over the second half of 2021 as a result. Some economists are even predicting 3% inflation by next year. This in turn will put upwards pressure on the Official Cash Rate (OCR).
The Reserve Bank could surprise us and act as early as November 2021 if inflation threatens the upper limit of the 1%-3% band it is mandated to keep inflation within.
Don’t expect anything dramatic though…
When the OCR does start moving, which we think is likely to be as early as February 2022 (and maybe even November 2021), expect a slow creep upwards rather than dramatic changes.
We see the OCR remaining below a 1% ceiling throughout 2022.
What about mortgage interest rates? Medium- and long-term rates have already started to increase in advance of the OCR, as we predicted in February 2021. Increases in short-term rates will most likely follow OCR increases.
If you want to lock in a long rate, now’s the time. As ex-BNZ chief economist Tony Alexander says…
“Borrowers should seriously consider forsaking the candy of cheap short-term fixed rates to lock in long rates at levels they may never see again in their lives.”
What about term deposit interest rates? ASB Bank had this to say in their Term Deposit Report of 5 February 2021…
Another year of low interest rates expected
- Low interest rates have been helping borrowers and frustrating savers over recent years.
- Term deposit interest rates have been steadily trimmed over the past year and are significantly below the average levels of the past 10-15 years.
- Interest rates are expected to stay low for several years, and we could still see some declines from today’s levels.
Note that the third bullet point relates to term deposit interest rates, not mortgage interest rates or the OCR, both of which have seen the bottom this cycle. We agree with ASB’s view.
3. NZ interest rates forecast: Political meddling in Reserve Bank independence adds to interest rate uncertainty
The government’s plans to encroach upon the Reserve Bank of New Zealand’s independence and allow politicians to have more say in financial regulation, such as lending restrictions, has introduced additional uncertainty to interest rates.
On Thursday 22 April 2021 when Finance Minister Grant Robertson announced plans for the long anticipated deposit insurance scheme and the Deposit Takers Bill, he surprised everyone by saying the reforms would also include a new process for setting lending restrictions, such as loan-to-valuation (LVR) ratio restrictions.
“This will give the Minister of Finance a role in determining which types of lending the Reserve Bank is able to directly restrict,” Robertson said.
The Reserve Bank of New Zealand (RBNZ) is responsible for operating monetary policy to “achieve and maintain price stability and support maximum sustainable employment”. (Source: https://www.rbnz.govt.nz/about-us)
When the Reserve Bank was first established it was given considerable independence from political influence. This allowed it to effectively achieve price stability (i.e. low inflation) and maximum sustainable employment (i.e. low unemployment).
That is now beginning to change.
“Cabinet has agreed that the Deposit Takers Bill will include a requirement that the Minister of Finance can make regulations, following consultation with the Reserve Bank, defining the type of lending that lending standards may relate to. This reflects the legitimate interest of elected representatives [i.e. politicians] in setting the permitted scope of this power given the potentially significant distributional effects it may have, and the potential tensions between the Reserve Bank setting lending restrictions to achieve its financial stability objective and wider governmental objectives [i.e. political agenda],” the Government says.
In layperson’s English…
- The Deposit Takers Bill gives the Minister of Finance the ability to make regulations that he previously couldn’t.
- These regulations will allow the Minister of Finance to dictate to the Reserve Bank that politically-chosen groups of borrowers must be excluded from lending restrictions.
- It restricts the Reserve Bank’s independence in achieving financial stability.
- It allows successive governments to curry favour with particular groups by making politically-motivated directives to the Reserve Bank to exclude them from lending restrictions.
For example, a policy of controlling the levels of debt-to-income ratios for house buyers is an effective tool to limit risky lending and strengthen the financial system. But allowing politicians to exclude some groups from that policy introduces the risk of distortions and bad things happening – the law of unintended consequences.
Logic would say it is a bad idea – unless your thinking is politically motivated.
We all know that once politicians are given power they are reluctant to give it up, so we don’t expect this new provision will be unwound with a change in government.
As to what impact it will have on interest rates, we will have to wait and see. The true impact will likely take several years to fully emerge.
4. NZ interest rates forecast: The long-term trend of low interest rates.
The 10-year government bond yield has trended down for the last 21 years. It was 7.6% on 19 January 2000, and is currently 1.8% (24 June 2021). It has been bouncing between 1.6% and 1.8% since February 2021.
The 10-year government bond yield set successive 30-year record lows when it sank to 0.98% on 16 August 2019, 0.49% on 14 May 2020, and 0.44% on 28 September 2020, continuing a trend that has prevailed here and around the world as inflation pressures evaporated and evidence of a slowdown in the global economy started to build.
The yield started a strong recovery from late-January 2021 to its current level of 1.8% (24 June 2021). It has been bouncing between 1.6% and 1.8% since late-February 2021. You can check the latest data here.
In 2019 the Reserve Bank of Australia (RBA) was predicted to cut its rate up to 3 more times by the end of 2020. Economists at JP Morgan previously predicted the RBA would eventually take the cash rate to 0.5%. At the time of their prediction it was sitting on 1.5% and has been at 0.1% since 3 November 2020.
And where the Aussies go, we follow.
Yields in the United States and Europe have been falling too. Benchmark US 10-year bonds dipped below 2% in June 2019, and traded between 1.8% and 0.7% ever since, as you can see in the chart below.
US 10-year Treasury Bond Yields
(Source: Financial Times)
Fed sees interest rates staying near zero through 2022
On 10 June 2020 the US Federal Reserve voted to keep benchmark short-term rates near zero and indicated that’s where they’ll stay as the economy recovers from the coronavirus pandemic.
“We’re not thinking about raising rates. We’re not even thinking about thinking about raising rates,”Fed Chairman Jerome Powell said. “What we’re thinking about is providing support for the economy. We think this is going to take some time.”
In addition to the rates move, the Fed said it would keep buying bonds, targeting $80 billion a month in Treasurys and $40 billion in mortgage-backed securities.
The Fed sees interest rates staying near zero through 2022. The “dot plot” of committee members’ rate expectations shows little dissent about keeping rates anchored through 2022. The committee’s 17 members unanimously saw the near-zero stance holding through 2021, and only two expected that to rise in 2022. No members indicated negative rates, a question that has come up repeatedly for Fed officials during public appearances.
Those of you relying on income from interest bearing deposits, best get used to virtually nil returns. It would not surprise me in the least if we enter a period of negative interest rates where you pay the bank to hold your money. Swiss banks charge 0.75% to those who deposit funds with them. Likewise Japan has adopted negative interest rates of around -0.1%.– Market commentator, March 2020
The following chart vividly illustrates his comments…
Eurozone Bond Yields & Mortgage Interest Rates
Mark Brooks, head of income at NZ Funds, said “Globally, there is a trend where inflation is lacking so markets are pricing out inflation and yields are falling as a result.” On the outlook for interest rates, Brooks said investors would be bracing themselves for the likelihood of still lower term deposit rates.
In our opinion, you’re more likely to see leprechauns in your garden than a return to high interest rates in the foreseeable future.
Ex-BNZ chief economist Tony Alexander said more or less the same thing, albeit less vividly, in his newsletter of 8 October 2020…
Expectations have heightened that interest rates will remain at low levels for many years. Traditional fears of a bounce back in rates to previous cyclical highs have disappeared.
5. NZ interest rates forecast: Interest rates reach 5,000 year low!
With the OCR holding at 0.25%, here’s proof that interest rates are the lowest they’ve been in the last 5,000 years of civilisation…
There’s a general feeling and growing consensus that interest rates have bottomed out during this cycle, but the exact timing of any increases is still highly uncertain.
Most are picking that short-term interest rates won’t start moving until next year, but long-term rates will start increasing this year.
And now for the really big picture, we have found interest rate data going back since before Muhammad (born c. AD 570), Jesus (born 4 BC), Julius Caesar (born 100 BC), Buddha (born 623 BC), Hammurabi , 6th king of the First Babylonian dynasty (born c. 1810 BC), and nearly as far back as Krishna, the Hindu god of compassion, tenderness and love (born 3102 BC).
About 1772 BC, King Hammurabi of the first dynasty of ancient Babylonia gave his people their earliest known formal code of laws. Hammurabi is pictured above, receiving his royal insignia from Shamash.
A number of the chief provisions of Hammurabi’s code of laws regulated credit, according to Homer and Sylla in their book A History of Interest Rates.
The maximum rate of interest was set at 33.3% p.a. for loans of grain, repayable in kind, and 20% p.a. for loans of silver by weight.
All loans had to be accompanied by written contracts witnessed before officials. Land and movables could be pledged for debt, as could the borrower himself, his wife, concubine, children, or slaves. Personal slavery for debt, however, was limited to 3 years.
As barbaric as those times may have been, one part of Hammurabi’s code was a big improvement on current practices. If a higher than legal interest rate was collected by subterfuge, the principal of the debt was cancelled. That would certainly force predatory lenders to toe the line!
And now, thanks to the Bank of England we have 5,000 years of interest rate data summarised in one graph…
Here are some of the interesting points in time from the graph…
- Mesopotamia, c. 3000 BC: interest rates of 20%
- Persian conquest (King Cyrus takes Babylon), 539 BC: interest rates of 40+%.
- Rome, Twelve Tables, 443 BC: 8.33%
- Rome, AD 1: 4%
- Venice, 1430s: 20%
- Venice, (Leonardo da Vinci paints “The Last Supper in Milan), 1490s: 6.25%
- England, 1700s: 9.92%
- US, West Florida annexed by the US, 1810s: 7.64%
- US, circa World War II, 1940s: 1.85%
- US, Reagan administration, 1980s: 15.84%
The dramatic drop in interest rates during the Great Depression that followed the 1929 sharemarket crash is clearly evident in the graph, as is the prolonged sideways slide thanks to World War II.
But today we do not have a Great Depression, let alone a Global Financial Crisis or a World War.
The old fashioned rule of thumb was that interest on a loan should be set at a rate that roughly returned the capital over 10 years. A $1,000 loan would become $2,000 over 10 years with compounding interest. Of course there were big swings one way or the other, but 0% or minus rates were never contemplated.
We heard that in 2019 a US company borrowed $1 billion dollars at 0% interest, which seems impossible. How was it done? Apparently the $1 billion was lodged with the bank for safety reasons at negative one percent interest (-1%), so the bank was making 1% by on-lending at 0%. Not a bad earner if you can make it.
Much has changed in 5,000 years…
Once we were taught to save, save, save.
Now we are told to spend, spend, spend.
Once we were told that inflation was a beast that must be tamed.
Now we are told that we must all push to create more inflation.
Confused? You are not the only one.
6. NZ interest rates forecast: Central bank interest rates around the world.
- Switzerland: -0.75%
- Denmark: -0.35%
- Japan: -0.1%
- Eurozone: 0%
- Sweden: 0%
- Norway: 0%
- Australia: 0.1%
- Great Britain: 0.1%
- Israel: 0.1%
- Poland: 0.1%
- Canada: 0.25%
- Czech Republic: 0.25%
- New Zealand: 0.25%
- USA: 0.25%
(Source: global-rates.com – List of current central bank interest rates)
7. NZ interest rates forecast: Why are interest rates so low?
Ben Bernanke, who served two terms as Chair of the Federal Reserve, wrote…
Low interest rates are not a short-term aberration, but part of a long-term trend. As the figure below shows, 10-year government bond yields in the United States were relatively low in the 1960s, rose to a peak above 15% in 1981, and have been declining ever since. That pattern is partly explained by the rise and fall of inflation, also shown in the figure. All else equal, investors demand higher yields when inflation is high to compensate them for the declining purchasing power of the dollars with which they expect to be repaid.– Ben Bernanke (Source: The Brookings Institution)
If inflation rises, interest rates will follow. But as we all know, we live in a low-inflation environment. Today’s low bond yields simply reflect economists’ and investors’ expectations that inflation will remain low.
8. NZ interest rates forecast: Can the Reserve Bank drive interests rates back up to high levels again?
In a word, No. Here’s Ben Bernanke again…
But what matters most for the economy is the real (inflation-adjusted) interest rate… The Fed’s ability to affect real rates of return, especially longer-term real rates, is transitory and limited. Except in the short run, real interest rates are determined by a wide range of economic factors, including prospects for economic growth – not by the Fed.– Ben Bernanke
If the Fed can’t affect US rates, what chance is there that our Reserve Bank could drive NZ interest rates up?
If our Reserve Bank kept interests rates artificially high, the economy would slow and fall into recession. This is because businesses don’t make capital investments when the cost of borrowing set by the Reserve Bank is greater than the potential return on those investments.
Nobody likes a recession, least of all our politicians, so… this scenario will never happen.
Similarly, if the Reserve Bank pushed market rates artificially low, the economy would eventually overheat, leading to high inflation – also an untenable situation.
The bottom line is that the state of the economy, not the Reserve Bank, ultimately determines interest rates. The Reserve Bank influences market rates in the short term, but not in an unconstrained way.
In short, we believe interest rates will remain low for a long time. They may nudge upwards in the next year or two, but will still remain low, especially by historical standards.
It is highly unlikely we will see a return to high interest rates in the short to medium term.
9. NZ interest rates forecast: Fixed-term mortgage interest rates today.
This table gives a snapshot of the current lowest advertised fixed-term mortgage interest rates on offer from New Zealand’s main retail banks today…
Current NZ Bank Fixed Mortgage Interest Rates Today
(For mortgages below 80% LVR. As at 13 August 2021.)
|1 yr||2 yr||3 yr||4 yr||5 yr|
Short-term interest rates have been kept low by the Reserve Bank by large, aggressive market interventions in the form of buying government bonds via their Large Scale Asset Purchase programme. Buying lots of government bonds increases demand for them and keeps interest rates lower than they would otherwise be.
“When we buy assets, this increases their price and so reduces their yield. That means the interest rate, in this case on government bonds, fall. This has the effect of ‘lowering the tide’ on other interest rates in the economy.” (Source: RBNZ Large-Scale asset purchases)
Interest rates for the shorter 1-year and 2-year terms bounced around in tiny changes over April/May 2021, sometimes edging down a tiny notch and sometimes edging back up. The changes were microscopic though. Since then the trend has been up, although the movements in these short-term rates have been very small.
The longer 3-year, 4-year and 5-year rates, on the other hand, have increased much faster. ASB was the leader here, increasing the 5-year rate from 2.99% to 3.39% and now 3.99%. The other banks all followed, including ANZ which has always been much more expensive on the longer rates.
We expect this trend to continue throughout 2021.
To underscore how much NZ bank mortgage interest rates dropped, in May 2017 the average 2-year fixed mortgage interest rate was 4.8%. By May 2018 it had dropped to 4.5% and in May 2019 it had dropped even further to 3.95%. By May 2020 it was down to 3.0% and on 27 November 2020 it was sitting at 2.58%. Since then it has gone up by less than a quarter of a percent and currently sits at 2.81%. (Source)
10. NZ interest rates forecast: Term deposit interest rates today.
As if one needed any more proof, take a look at the following graph of 1-year NZ bank term deposit savings/investment rates in New Zealand from January 2008 to April 2021, a time span of over 13 years.
You can see a huge drop of nearly 5% in NZ bank 1-year term deposit rates following the GFC, followed by a short-lived 1% bounce back, and then a continuation of the downward trend right through to today.
With the exception of a few small blips along the way, that’s 12 years of declining term deposit interest rates. The interest rate train has had no brakes and been running downhill for a very long time. It’s now running along the valley floor but has so much momentum we don’t expect it to stop any time soon.
1-year NZ Bank Term Deposit Interest Rates in NZ
Term deposit rates today
The following list details the best current term deposit rates for $10,000+ in New Zealand for the major NZ trading banks today…
Current NZ Bank Term Deposit Interest Rates Today
(Term deposits of $10,000+. As at 13 August 2021.)
|1 yr||2 yr||3 yr||4 yr||5 yr|
Note: After flatlining at historically low rates from late 2020 until May 2021, term deposit rates have since been inching upwards in micro-movements. In context, though, the rates have increased from not much to not much more.
Interest rates have been kept low by the Reserve Bank by large, aggressive market interventions in the form of buying government bonds via their Large Scale Asset Purchase programme. Buying lots of government bonds increases demand for them and keeps interest rates lower than they would otherwise be.
“When we buy assets, this increases their price and so reduces their yield. That means the interest rate, in this case on government bonds, fall. This has the effect of ‘lowering the tide’ on other interest rates in the economy, particularly longer-term interest rates of two years or more. It also reduces the cost of borrowing for households and businesses.” (Source: RBNZ Large-Scale asset purchases)
The average 12-month term deposit rate at the beginning of 2019 was 3.36% (source). Current rates are therefore down to less than one-third of 2019’s rate.
Under the Funding for Lending Programme (FLP), the Reserve Bank of New Zealand lends funds to banks at the Official Cash Rate (OCR) for them to lend to businesses and households. This is not the GFC and banks do not have a funding problem, so the need for banks to aggressively compete for deposits is not strong.
With uncertainty continuing to reign, expect term deposit rates to stay low for a long time.
On 30 July 2020 ex-BNZ chief economist Tony Alexander said, “Every week brings some new, small, declines in term deposit rates as banks seek to build their interest rate margins to try and offset the losses they know they will eventually book from business failure and debt restructuring associated with this crisis.”
And then on 31 August 2020 ASB Bank said this in their Economic Weekly update…
Our forecasts for term deposit rates and mortgage rates have been slashed.– Mike Jones, ASB Bank economist
We think that an RBNZ scheme to lower the OCR below zero and lend directly to banks, if introduced, would heap downward pressure onto term deposit rates.
They’re already at rock-bottom levels, but we see further downside.
In short, we think term deposit rates could fall below 1% with mortgage rates for some terms below 2%.
How prescient he was. Term deposit interest rates fell well below 1% and the 1-year rate took until May 2021 to recover back up to 1% levels.
Mortgage interest rates, however, are still in the mid 2% range with no chance of falling below 2% during this cycle.
BTW, the chances of the OCR falling to zero, let alone below zero, have evaporated. We calculate that we are currently at the bottom of the interest rate cycle and therefore don’t see the OCR being lowered any further this cycle.
11. NZ interest rates forecast: After-tax retirement income today.
Let’s assume you are a retiree and your only source of income is the pension and interest on a $1 million term deposit at 1.2% p.a. That puts you on a 17.5% income tax rate.
Your after-tax income from that whopping $1 million term deposit is a pitiful $9,900 p.a. That’s only $190 per week. Who can live on that?
In the current low-interest rate environment, is it any wonder people are chasing higher-yield investments?