Competition keeps NZ deposit rates high 22 October 2010 5:23PM Sophia Rodrigues Despite clear signals that the cash rate is unlikely to move up any time soon, deposit rates in New Zealand continue to edge higher as banks compete with each other and with finance companies for more funds.The competition has become intense now financial institutions have to compete with corporates as the bond market has become an attractive investment option for many investors.And, with NZ$1.6 billion having been returned to investors from the collapsed finance company South Canterbury Finance most entities have put forward their best interest rates to ensure they can grab a slice of SCF funds.UDC Finance is the latest finance company to raise its deposit rates and this aggressive move is revealed by the fact that only earlier this month the company sharply increased to its rates. UDC hasn't enrolled in the Government's extended guarantee scheme and is banking on its relationship with ANZ to attract investors. At 5.50 per cent on the five-month deposit, UDC's rate compares with 5.50 per cent from Marac Finance, on a guaranteed six-month term, but UDC is rated AA and Marac is at BB+.Equitable Mortgages offers the best rate for a one-year term among the guaranteed deposits. The company is offering 6.50 per cent, but its BB- rating is the lowest of all such companies.Bank of New Zealand made some big changes late last week and combined two rate-brackets to create a 5.30 per cent on a nine-month deposit - the best among major banks for a minimum NZ$5000 deposit.Westpac has a 4.20 per cent special rate for a 90-day deposit, for a minimum NZ$10,000, but this is beaten by RaboDirect offering 4.45 per cent for the same term.The non-guaranteed smaller finance companies continue to offer much more attractive interest rates to compensate for the higher risk. FE Investments, an unrated company, is offering the best rate of 10 per cent for a 12-month term and a minimum NZ$5,000 deposit. Asset Finance and Finance Direct follow, with a 9.25 per cent rate, while Equitable Mortgages offers 7.25 per cent for its non-guaranteed deposits.Bond issues timed to get investment from ex-SCF investors include APN Media, which is raising up to NZ$200 million via five-year bonds. The issue opens in early November. Goodman Fielder is offering a minimum 7.25 rate on its May 2016 bonds, which is opening next week and aims to raise up to NZ$250 million.In the secondary market, the AAA-rated government bond maturing in April 2015 can be obtained at 4.35 per cent. Rabobank's AAA-rated 2014 bond is trading at 5.12 per cent and AIA's A-rate 2012 bond is available at a 5.38 per cent yield.