Estimates of $21bn in term deposits will be maturing over the next six months. With interest rates expected to track lower, investors will need to decide how to reinvest that money. Term deposits and investment funds both have benefits, so is there a better option? Milford Head of Wealth Management, Philip Morgan Rees, talks to Ryan Bridge about the differences, and how to use both avenues to your advantage.
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Bridge talks Business: 3 June 2025
Episode Transcript
Ryan Bridge
Kia ora and welcome to Episode 35 of Bridge talks Business with Milford. Today is all about savers. Yes, that’s you. When we get an OCR (Official Cash Rate) cut like we did last week, all the focus tends to be on how much mortgage holders save, rather than how much savers might lose. We had 25 basis points last week, and we’re expecting another 25 later this year, which means the rates track is going even lower. So, if you’re thinking about how to get a better return on your investment, stay tuned for today’s feature interview.
But first, your top five business bits from the past seven days.
1. US courts struck down a number of Trump’s tariffs last week. Investors were happy, but with Trump, where there’s a will, there’s a way, and the best-case scenario here is an end to the tariff agenda. That’s probably wishful thinking, though.
2. Softer US inflation data indicates that corporates didn’t price hike ahead of the tariffs, but the full impact of these will take at least six months to filter through in full.
3. Nvidia’s result exceeded investor expectations for the quarter. They topped off a strong earnings season for the big cap tech companies. The stock was modestly higher, but tech stocks generally have had a pretty strong run of late.
4. The Reserve Bank here cut, but poured cold water on the prospect of significant further cuts. In contrast to the RBA across the Tasman, the Reserve Bank views the trade war as creating upside risk to inflation.
5. This week, we look for key jobs data. Investors and the Fed are on alert in the US for weakness in the labour market. While employment growth in the US has been softening, the labour market appears to be in still quite reasonable shape despite all the uncertainty that businesses there are facing.
Right, it’s time for our feature interview this week. We’re talking to Phil Morgan Rees, Milford’s Head of Wealth Management and Advice. There’s about $21 billion worth of term deposits that are going to be maturing over the next six months, so that’s a whole bunch of money that’s looking for a new home. I want to get some advice for people who are wondering, what do we do? Don’t forget that this segment is informational only and should not be considered financial advice.
Phil, welcome to the podcast.
Phil Morgan Rees
Thank you.
Ryan Bridge
Lovely to have you here. Today we’re talking, you know, when there’s an OCR announcement, we all talk about the mortgage holders who are going to be paying less and all that sort of stuff. Today, we’re talking about the other side of the equation, the term depositors. Have you been contacted by many who are looking to get better returns elsewhere?
Phil Morgan Rees
Oh, yes, probably since about last September when expectations started to form in people’s minds. People would come and talk to us. But what I find is it’s really important to understand the differences between investing in a term deposit and investing in a diversified portfolio of shares and bonds. We back a diversified portfolio of shares and bonds over the long term, right? So, let’s take that long term. If over the last 10 years you’ve been invested in the Milford Wealth Balance Strategy, you’d have averaged about 8% per annum, just over 8% per annum. And if you put $100,000 in, you’d be sitting on $214,000, right? If you’d have been rolling a six-month term deposit for that period, you’d have averaged just over 3% per annum, and you’d be sitting on around $138,000. So that’s a big difference over time. That’s why we really back shares and bonds.
Inflation over that period would have averaged about 2.9%. So that’s about $130,000 of that return, okay? So, you’ve always got to remember about inflation when you’re investing in a cash-like product. But, you know, we’ve talked about this before. Whilst we back shares and bonds over the long term for those higher returns, volatility is the price you pay for those higher longer-term returns. So, they are different.
Ryan Bridge
And it depends when you want to get your money out, right? That’s going to have a big impact on where you land at the end of all this, presumably.
Phil Morgan Rees
Yeah, it does. The different instruments have their place, okay? And it’s just about figuring out what place that is and what part they have to play. If you look at the core or the simplest differences between a term deposit and investing in markets, and right now, if you’re seeing lots of adverts that say, “you could be getting better returns,” my suggestion is to stop and make a really thorough assessment because they’re quite different.
A term deposit, think fixed. You start with a fixed amount, say $100,000, and you’re going to invest for a fixed term, and you’re going to get a fixed rate. A term deposit is generally regarded as a low-risk, safe savings tool. You give your $100,000, you get your $100,000 back, plus an amount of interest. The top tax rate is 39%, so a little bit different to PIEs, which is less, but it’s really that simple. Good savings tool.
Investing in a diversified portfolio in shares and bonds – first thing, nothing’s really fixed. Take your $100,000, the return is variable. If I talked about that balanced strategy invested over 10 years, for the 12 months to April this year, the return would have been 7%. For the previous 12 months, it would have been 9%. For the prior 12 months, it would have been 2%. So, it really does move around a lot. You’ve always got to be thinking long term. While investing in a fund or a portfolio of shares and bonds doesn’t have a fixed term, it’s liquid, so you can get your money out. But every fund will have a minimum recommended time horizon, and that’s the thing to look at. If the minimum recommended time horizon is five years, you need to be thinking five years in terms of your investment. So, it is quite a different thing, and the first thing I’d say is, really understand the differences between the two because both can play a part.
Ryan Bridge
So, you can have it all. You can do both, and you should?
Phil Morgan Rees
Well, it depends on what you’re doing, right? So, a term deposit is a really good use. Let’s say we’ve sold an asset, and we’re buying another one in seven months’ time. So, we know we’ve got to make a payment. We could term deposit for six months. That’s a really smart idea, because you always want to have your money working for you, right? We’re big advocates. Over and above what you need or your emergency money, you need to get your money working for you, and that’s what we’re all about. So, something like that for a term deposit works really good. Part of a bigger structured approach could well be good. But actually, if you’re thinking long term, come back to those returns we talked about right at the start. Getting into a portfolio of shares and bonds or a PIE fund (top rate of tax also is 28%) that will give you a better long-term return, as long as you understand, one, the differences and, two, the process of investing is different to the process of saving a term deposit.
Ryan Bridge
What are some of the pitfalls with this?
Phil Morgan Rees
There are quite a few. The first one I would say that we see is people comparing them over the short term. And that’s fundamentally really missing that they’re quite different things, and they do different things. So, comparing them over the short term is the first pitfall. And what that can lead to is chasing performance, right? And that’s not a long-term strategy. That’s number one.
Ignoring inflation is a second one. I talked about earlier, the difference over the 10-year period between inflation and the term deposit rate — a six-month rolling term deposit rate was not very much. It was less than $10,000. So, you’re really not keeping up with the real value of money.
And then ignoring taxation. Quite simply, the top rate of tax with a PIE fund is 28%. The top rate of tax with a term deposit is 39%. So, there are quite a number of pitfalls. I would say the top one is comparing them over the short term, because interestingly, what people will do is say, “I think I’ll stick with the term deposit, for example, because that’ll give me 5% over the next year. Whereas if I looked at that balanced strategy, it only gave 2% last year”. But you’re comparing apples and oranges, right? So really understanding you can only compare them over the long term is the big thing.
Ryan Bridge
Why is the PIE tax rate so different from the marginal tax rate on a term deposit?
Phil Morgan Rees
Oh, it just is. It’s just the way the IRD (Inland Revenue Department) has concluded. If you remember, PIE funds were only really established in 2007 to launch KiwiSaver. So prior to that, funds had this really disadvantageous tax regime. Part of the process of getting the investment environment ready for KiwiSaver was creating these PIE funds where you had a top tax rate of 28%. And that stayed the same.
Ryan Bridge
And that’s to encourage people to save and keep more of your own money when you get to retirement.
Phil Morgan Rees
Yeah.
Ryan Bridge
So Phil, what should people do? People who are looking at the falling interest rates, they’ve got term deposits, they’re looking for a better return. What do you advise them?
Phil Morgan Rees
Well, a couple of things. It is different. So, finding out how different it is. Speak to an adviser. An adviser can help in a situation like this. An adviser can help you figure out which is the best investment to get into. They could help you figure out how best to get into it. You know, if you’re going from cash, there are ways to smooth the investment when you initially invest, to smooth the impact of volatility by investing in installments. So, they could help you with that approach. They could also help you with that approach when it comes to using that money. So, you know, withdrawing in installments and pretty much everything in between. So, talking to an adviser can be very useful. Educational purposes: What am I trying to do here? What should I be thinking about? What are the factors I need to understand? And then supporting you through the best way to invest, the best thing to invest in for you at that stage, and help you through that investment journey. Because investing, as I said, is a process. It’s also a journey. And I think turning to an adviser, you have someone alongside you who can help you make that journey a really good one.
Ryan Bridge
Great advice as always, Phil. Thank you very much.
Phil Morgan Rees
Thank you.
Ryan Bridge
That was Phil Morgan Rees. He’s, of course, the Head of Wealth Management and Advice at Milford. Don’t forget to like, follow, and subscribe this podcast. If you like getting financial information, if you like hearing more about markets, then send this to a friend. Until then, see you next week.
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