Find the best savings accounts in New Zealand
If you’re looking to find the best saving accounts in New Zealand this article will provide you with some of the facts you need to know as well as expert tips and tricks to help you keep your investments safe and earning the best possible interest.
Important terms & definitions
NBDT’s: (Non-bank Deposit Takers) this refers to financial services providers that are not considered banks. These include smaller lenders, credit unions and building societies.
Top 10 reasons to maintain a savings account
- Use your savings as an emergency fund.
- Having access to savings provides financial freedom, security and a confidence.
- Make a deposit on the purchase of an asset such as an investment property.
- Use your own money rather than borrowing from the bank or paying interest on credit cards.
- Earn compound interest on long term savings and use this as a retirement plan.
- Secure the well being of your family in the event that something happens to you.
- Secure your lifestyle in the event that you lose your income or job.
- Use savings to start or expand a business.
- Use savings to travel and see the world.
- Living from month to month is stressful, savings will put you in a position of comfort and power.
- Make financial and life decisions from a place of power and abundance rather than a place of desperation.
How to choose the best savings account in New Zealand
When it comes to choosing a savings account in New Zealand it’s not as simple as comparing interest rates and going with the highest on offer. You need to take all of the features of the savings account into consideration to make sure that it will meet your financial goals and needs.
No notice versus notice savings accounts
A no notice savings account is more flexible as it allows you to access your money immediately whenever you wish to do so. In exchange for this convenience you receive a slightly lower interest rate on your savings.
With a savings account that requires a notice you must provide your NZ bank or financial services provider with notice which ranges between 32 days notice, 90 days notice and 150 days’ notice.
Since you cannot easily access your money the interest rate offered on these accounts is higher.
If you experience a financial emergency and need to withdraw the funds from your notice savings account you can do so however, you will be charged a penalty fee. It is wise to ascertain the penalty fees you’ll encounter in such an event.
Choose a reliable NBDT service provider by using credit ratings
When it comes to opening a savings account with a bank, it’s fairly simple to review their offerings by visiting their website or calling a banker. You can also choose to open a savings account with a credit union or building society.
All such non-bank deposit takers (NBDTs), are required to be registered with the Reserve Bank of New Zealand and to have a credit rating which investors can use to ascertain the risk of investing or saving their money with the NBDT. The “lower” (B or above) the credit rating the higher the risk to a saver who invests their money with the particular NBDT.
This credit rating ranges from AAA which is extremely strong with a probability of default of 1 in 600 to D or C which is regarded as highly vulnerable or default and investing your money will carry a 1 in 2 probability of not receiving your money or the interest you were expecting.
As a rule, if the NBDT has a credit score of B, C or D it’s best not to invest your money with them as the risk of defaulting, on their part, is high.
How to compare savings accounts in New Zealand
To compare savings accounts you need to take into account the interest rates offered, the total account management fees that you will be charged, the notice period, if there is one and, the minimum deposit amount.
Some savings accounts have a small or non-existent minimum amount while others that have a competitive interest rate may have a higher minimum amount.
There are also a few other crucial things for you to take into consideration when choosing a savings account.
This includes things such as what you investment portfolio looks like, what assets you own and the liquidity of these assets, other savings accounts if you have any, your financial goals and what you want to do or achieve with your savings.
A savings account dedicated to emergencies or what is commonly known as an emergency fund serves a different purpose to a long term savings account dedicated to funding your retirement.
How does compound interest work?
Compound interest is simply the interest you’re earning on interest earned from your principle investment amount.
If you save $10,000 and earn an interest of 5% per annum, you will then have earned $500 in the first year bringing your total savings to $10,050.
At the end of the second year you will have earned $525 worth of interest on the balance of $10,500, bringing your savings to $11,025.
A few tips & tricks to help you find the best savings accounts in New Zealand
If you already have a savings account, why not call you banker and ask them to go through the details of your account or simply log in to your online banking account and review the product manually.
You can then use this information to compare to other savings accounts that have come onto the market recently as you just may find a better option.
Another tip is for those that have maintained a savings account for a long period of time and have not had the need to make use of the money, why not look at increasing your notice period or investing it into a term deposit for a longer period of time. This will offer you a much higher interest rate.
Finally, check to see which savings accounts have been making headlines or are changing things up in the market as these will offer the best returns and will most likely beat the returns you’re getting from your current savings account.
