While homeowners are jumping up and down with excitement over the low mortgage rates, savers aren't having so much fun.

Short-term bank deposit rates have fallen at all the major banks in recent weeks and this week RaboDirect also cut its long-term five-year deposit rate from 6 per cent to 5.75 per cent per annum.

It's an issue which is hitting a lot of savers, particularly those in the older generations, in the pocket.

According to KPMG's annual Financial Institution Performance Survey published in April bank deposits are at their highest.


Last year they increased by 7.6 per cent to $203.1 billion. That follows on from an increase of 5.5 per cent last year and an average growth rate of 6 per cent over the last five years.

KPMG partner Matt Prichard says the growth has been driven by reduced consumption by both households and businesses, a flight to low risk investments in the wake of the global financial crisis, and local finance company collapses, and new bank liquidity rules.

The new rules were a particular driver of deposit interest rate competition last year when the Reserve Bank specified that banks had to hold enough money to cover 75 per cent of their liabilities.

Most of the banks have since exceeded that so the pressure has come off, although they have to maintain the funding.

Deposit rates have fallen recently on the back of falls in the wholesale funding market - where New Zealand banks go to borrow money internationally.

The turmoil in Europe has also driven the market down and in New Zealand the rates are also being affected by expectation the Reserve Bank may cut the official cash rate.

Massey University banking expert David Tripe says retail deposit interest rates are at recent historic lows.

"They were lower during the mid 1980s when it was standard for banks to offer 3 per cent interest on savings accounts."

But Tripe says there could be light at the end of tunnel if the economy starts to pick up and there is lending growth.

"If we start having an environment of lending growth it might put pressure on bank funding," he says.

"We could start to see some dramatic increases in deposit rates."

New Zealand Bankers' Association chief executive Kirk Hope says it is a pretty challenging environment for the banks.

"Balancing the needs and aspirations of borrowers and depositors, within the context of global uncertainty and a very competitive market, provides plenty of challenges for our banks," Hope says.

"Domestic deposits are needed to ensure ongoing lending, which is vital for economic growth.

"Added to those challenges are increased regulatory demands such as the Reserve Bank's core funding ratio and higher Basel III capital standards which make bank profitability even more important," Hope says.