What is an everyday account?
An everyday account is a bank account used to manage your everyday finances. You can deposit your income, and withdraw money in a variety of ways: debit card, EFTPOS, ATMs, direct debit, BPAY, digital pay and branch access.
Individuals can compare everyday accounts on our website. Businesses can compare business bank accounts here.
Many banking apps and digital wallets also allow you to make contactless payments using your mobile phone. Contactless mobile phone payment systems in New Zealand include Apple Pay, Google Wallet, Google Pay and Samsung Pay.
Common features and fees of everyday accounts:
Here are a few things to consider when comparing everyday accounts:
- Interest rates – the higher the better!
- Account fees, if any
- Suitable minimum or maximum deposit amounts
- Free transactions and ATM withdrawals
- Accessibility of branches and ATMs, if necessary
Most everyday accounts offered by major banks are free of fees. However, some do have associated costs, these can include:
- Monthly account-keeping fees
- Branch cash or cheque deposit, or withdrawal fees
- EFTPOS transaction fees
- Non-bank ATM withdrawal fees
Surcharges are another matter entirely. Surcharges are fees charged by the business you are purchasing the good or service from, to cover the extra cost involved in processing a transaction by debit card rather than by cash.
If you use payWave, you should be aware that there may be a surcharge every time you make a payment. New Zealand retailers are charged a fee for every contactless payment they process, and this cost is sometimes passed on to the consumer, through surcharges.
What is a savings account?
A savings account is an account into which you deposit money in order to earn interest and build savings.
Savings accounts simplify the process of saving money by creating a separation between the money you’re saving and everyday spending – which is usually kept in a transaction account.
Savings are important for many reasons – a rainy day, unexpected expenses, and of course, retirement.
The key to growing your savings is to set realistic goals and understand what to look for when choosing a savings account.
Savings accounts – common features and fees:
Here are a few things to consider when comparing savings accounts:
- Interest rates – the higher the better!
- Account fees, if any
- Suitable minimum or maximum deposit amounts
- Free transactions and ATM withdrawals
- Accessibility of branches and ATMs, if necessary
Common fees to look out for include:
- Withdrawal/early withdrawal fees
- Branch deposit fees
- Over-the-counter transaction fees
- EFTPOS, electronic transaction and ATM fees
What is a high interest savings account?
High interest savings accounts typically offer higher rates of interest than traditional savings accounts, and break down into three main types:
Instant access savings accounts
These accounts offer instant access to your funds. Many offer a low base rate of interest, and bonus interest only if you make limited withdrawals and/or increase your account balance each month.
Notice savings accounts and term deposits
A notice savings account requires a saver to give prior notice of any cash withdrawal, for example 30 or 90 days’ notice. Money in term deposits are tied up for a fixed term, from a few months up to five years. While you can still usually access your money early if it's in a term savings account, it can be a complicated procedure and you could face penalty charges.
Term deposits and notice savings accounts tend to offer higher rates of interest than instant access savings accounts.
PIE funds
PIE funds are low-risk investment products that function like term deposits. However, because they invest your savings (usually in very low risk assets like cash and bonds), any interest you earn is taxed at your your prescribed investor rate (PIR), which is lower than your personal income tax rate – meaning you get better returns on your savings.
Because of the tax breaks involved, PIE funds offer the best returns across savings accounts.
What is the difference between a savings account and an everyday account?
A savings account awards interest on the account balance. Such accounts are designed for customers to be able to grow their savings.
A savings account can be linked to an everyday account, so you can easily transfer money between the two.
Some savings accounts reward you with bonus interest, or waived fees, if you maintain a minimum balance, avoid making withdrawals, or deposit funds monthly.
Unlike an everyday account, a savings account doesn't come with a debit card, and isn't meant to be used for day-to-day spending.
Some banks will also only allow you to transfer money from a savings account to a linked everyday account, rather than allowing withdrawals or payments directly from the savings account.
What is a term deposit account?
A term deposit is an investment of cash placed with a financial institution for a fixed period of time, known as the term, with a fixed interest rate for your return at the end of the term.
Fixed terms can typically range from one month to five years – but some can be up to ten years – and the money can usually only be withdrawn at the end of the term. If you need to withdraw your funds before the end of the set term, you may receive an interest rate penalty.
Term deposits are popular for use by investors who prefer receiving a set return, instead of worrying about the possible daily fluctuations of the interest rates on offer for at-call accounts. Some investors may use term deposits as just one part of their particular mix of investments.
Applying for a term deposit is essentially the same as applying for a normal savings bank account, and most applications can be made online.
Pros and cons of term deposits
Pros:
- You receive a specified interest rate at the end of the term, regardless of whether rates drop in the meantime.
- Savings are locked away, preventing the temptation to spend it all.
- Low-risk investment – less volatility in the term deposit market.
Cons:
- If you choose a short term deposit of 3 months to 12 months, you might find that the rates now on offer are lower when it’s time to renew. If you choose a longer term deposit of 3 – 5 years, rates might go up during your term – but you would miss out because your rate is fixed for the term.
- Your money is not available for use at any time. You can pay a penalty if you need to withdraw your money early.
- There is a minimum deposit amount required.
- You sometimes need to go into a branch, rather than being able to manage your account entirely online.
- Interest does not usually compound. It’s generally a simple interest, a fixed percentage paid at the end of the term.
- In order to open a term deposit, some financial institutions require you to also open a deposit account. Check the fees first! Any ongoing account-keeping fees for the account could eat up any return you earned in interest from your term deposit.
Factors to consider when comparing term deposits include:
- If it's easy to set up the term deposit on-line
- If there are any fees involved
- Is there a minimum investment amount
- The interest rates on offer for different terms
- What happens to the account's balance at maturity
- What penalties apply if you need to access your money early
- Your choice of fixed term
How long should you invest your term deposit?
One of the main issues in choosing a term deposit is whether to invest for the short term in the hopes that interest rates will rise, or for the long term to lock in today’s rate in case it falls further. Unfortunately, none of us can see the future, and we don’t recommend using a crystal ball to decide which way to go.
One way to hedge your bets is to “ladder” (stagger) your investments. Laddering is a strategy where you place some of your money in a long-term deposit, and the rest goes into several short-term deposits that mature every month or quarter and automatically renew at the current rate. That way, you don’t “miss out” on higher rates that come up now and then, and eventually all of your money is invested in a long-term deposit.
It’s a bit like singing a harmonic canon in rounds: someone is always starting the melody while another is finishing.
Advantages of laddering term deposits:
- Average interest rates on offer tend (at this point in time) to be slightly higher over long periods of time – but not by a great deal as we are in a very low interest rate environment.
- It’s a structured way to invest, and it’s better than relying on a few large, but short, term deposits. You have the long-term guarantee of a certain return, which is reassuring if your retirement depends on a certain amount of income.
- It gives you more flexibility than just putting all your savings into one big, long term deposit.
- You have the option to take the short-term deposits out if you need or want to, instead of putting all of the money away for a long period of time.
Disadvantages of laddering term deposits:
- Some of your money is locked in for a longer time, so if you need to withdraw money unexpectedly, you can’t reach all of it.
- You could be stuck with a low rate for a long time on the bulk of your money. 3.95% may look like a decent interest rate today, but who knows if it will be in 5 years' time?
- Laddering involves far more paperwork than putting all your money into one or two term deposits or a notice saver account.
What is the Depositor Compensation Scheme?
The Depositor Compensation Scheme (DCS) is a government initiative that guarantees savers' money in the event that the financial institution holding their funds goes under. It protects up to $100,000 of savings per depositor, per deposit taker, in the event that the deposit taker gets into financial difficulty.
What does the depositor compensation scheme cover?
The DCS covers cash deposits in regular savings accounts, including:
- Current and savings accounts
- Notice accounts
- Term deposits
The DCS covers up to $100,000 of savings per depositor, per deposit taker. This means if you have savings of $200,000 spread equally across two financial institutions, your full $200,000 will be covered.
However, if you have $200,000 saved with one deposit taker, only $100,000 will be covered.
Although if you are a couple with a joint savings account with one provider, you each receive $100,000 of cover.
What doesn't the depositor compensation scheme cover?
The DCS doesn't cover investments such as stocks and shares, bonds and other managed investment products, including KiwiSaver.
One grey area is PIE Funds. The regulations state that certain PIE funds are covered, but only if they invest in the "protected deposits issued by a single licensed deposit taker”. For example, an NZ bank's PIE fund that invests only in the bank's own dollar deposits.
If you have any concerns about whether your choice of savings account or PIE fund product is covered by the DCS, just ask your provider.
To make things clearer for consumers, documentation for all PIE funds and other financial products covered by the DCS will be clearly marked with the DCS logo.
Which deposit takers are covered under the depositor compensation scheme?
The DCS covers all New Zealand banks, building societies, credit unions and finance companies that are either registered or licensed by the Reserve Bank of New Zealand to take deposits from customers.
This covers the major banks and financial institutions such as Xceda Finance and General Finance, two providers that offer the highest term deposit rates on Canstar's database.
For the full list of registered NZ banks click here.
For the full list of licensed non-bank deposit takers click here.
What are the benefits of the depositor compensation scheme?
For savers, the DCS offers peace of mind that their savings are secure. And because the DCS covers up to $100,000 per depositor, per deposit taker, savers can protect larger sums by splitting their money between different financial institutions.
The DCS also offers the opportunity to chase higher returns via non-bank deposit takers that have lower credit ratings than the major banks.
While most of the big banks enjoy AA- ratings, smaller deposit takers usually have credit ratings of around BB. While this is still good, it can deter savers looking to deposit large sums. The introduction of the DCS affords savers an extra level of protection.
If you're considering investing in a term deposit, you can access the up-to-date term deposit rates on Canstar's database by clicking on the button below.
