Author Katrina Shanks. Article originally published in Stuff.co.nz.
OPINION: As mortgage interest rates continue to sneak up, despite the Reserve Bank holding the official cash rate for the past few months, so too are interest rates on savings accounts.
That’s bad news for borrowers but good news for people with money in savings accounts.
In July 2021, the average base savings account rate on Canstar’s database was 0.20%, the average bonus savings account rate was 0.29%, and the best rate you could achieve on savings was 0.75%.
At latest count, in August, the average base savings account rate had leapt to 2.88%, the average bonus savings account rate to 4.50%, and the savings account with the highest return offers total interest (including bonus) was 5.25% per annum.
They are big changes and should prompt those with money sitting in eftpos accounts, because it was hardly worth putting it anywhere else in 2021, as well as those already with savings accounts, to look around at what’s on offer from the various banks.
Because there are some interesting options available.
But first there are some basic rules around the type of account you choose because they are not all created equal.
First, there are bank savings accounts that offer great interest rates but restrict if, how much, or how often you can touch your money, and then there are those that give you unlimited and immediate access to your money but with lower interest rates.
It’s hard to find any that offer a good mix of both, so it’s a decision you have to make depending on your needs.
Basically, if you opt for an account with a higher interest rate return, you are committing to locking your money away for longer.
These are called term investments, where you can opt for terms ranging from one month, three months, six months, 12 months, 18 months, two years, three year, and five years.
The longer the term, the higher the interest rate your money will attract.
As long as you can afford to go without access to your money for the set period, then you get the best return.
But a catch is that should you need to withdraw money due to some unforeseen circumstance before the term is up, you are likely to forgo some of the agreed interest rate, or even forgo it all, depending on how far into the term you make your withdrawal.
Some banks have what are called notice saver accounts, which offer high interest rates and allow you to withdraw your money without penalty – but you have to give them plenty of notice, often between 32 and 90 days, depending on the length of the term.
On the other hand, the beauty of accounts that give you unlimited, any-time access to your money is that they’re simple and easy to run.
However, most will charge a small fee each time you withdraw some money, although they often let you make the first one each month free.
It’s hardly surprising that with the rise in deposit interest rates, from the best of 0.75% in 2021 to 5.25% this year, has come renewed interest in savings accounts, and so in banks’ efforts to attract your business.
In this regard, there are a couple of banks that are right now offering some incentives with a twist, and interestingly enough, they are both New Zealand-owned.
TSB Bank has a “websaver” account that is a typical personal on-call savings account, but account holders go into a monthly draw to win $25,000.
Each complete $1000 in the account at the time of each draw entitles the account holder to one entry in the draw. The other is the Co-op Bank’s prize draw saver. This is also an online account, and all account holders go into a monthly prize draw for a Mini Cooper car.
Talking of incentives offered by banks to gain new business, if your mortgage is coming up for renewal it may be worth your while looking around to see what other banks are offering.
Certainly, all five of main New Zealand banks offer incentives if you move your mortgage over to them, and with interest rates differing little these days, often it can be these incentives that make the difference.
They all have home loan products for energy efficiency and helping make homes warmer, drier, and heathier, while some have now gone further.
Many involve low- or no-interest rate loans for a wide range of initiatives, such as heat pumps, insulation, glazing (double, secondary, or triple), ventilation, water heating systems, hybrid and electric vehicles, electric vehicle chargers, electric bikes, solar panels, solar batteries, rainwater tanks, wood or pellet burners, wetbacks, ground moisture barriers.
Westpac is a standout when it comes to electric vehicles.
It offers interest-free loans of up to five years to customers wanting to buy an electric vehicle.
There are no establishment fees and the loan is structured to be fully paid off after the five-year interest-free period. This loan is open to anyone with a Westpac home loan who meets lending and affordability criteria.
As my financial adviser would say – whether it’s a savings account or a mortgage, it always pays to shop around.
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