Easy access to money
Whether we choose a savings account or term deposit will depend on how quickly we need the money. Good questions to ask are: ‘Would I need it if I lost my job?' Or 'Are the savings for short-term spending such as holidays?’
Most basic savings accounts allow us to withdraw our money whenever we want. But if we don’t need the money straight away, we could get a higher interest rate from a term deposit.
Returns from bank deposits
Bank deposits usually earn interest. That means for every dollar we save, we earn a few cents each year in interest. Interest may be paid daily, monthly or yearly, but is usually quoted as an annual figure such as 2% or 4%.
Most savings accounts offer a straightforward interest rate. Bonus saver accounts are different because they offer a low basic rate and a ‘bonus’ interest rate if we meet certain criteria, such as not withdrawing our money.
Banks offer different interest rates on deposit accounts, and it’s worth shopping around to find the best rate.
You can find current rates on MoneyHub or interest.co.nz.
Even small amounts of regular savings can really grow over time, thanks to the power of compound interest.
Are you looking for income or growth?
Bank deposits are good for regular interest payments, or access to money at short notice. However, tax and inflation can eat into the value of the interest earned.
If you want the money you invest to grow further, and can cope with a higher level of risk, consider other investments such as shares, managed funds and property. Here's a guide to different kinds of investments.
If a savings account or term deposit is a PIE (Portfolio Investment Entity), you will pay a lower rate of tax on the interest you earn. There is usually a minimum deposit and other criteria for investing in these types of accounts.
Risks of investing in bank deposits
Bank deposits are some of the safest investments available to New Zealanders. But no one can guarantee that a bank or financial institution won’t fail.
Someone with large sums to invest may want to spread the money across several banks or other institutions such as credit unions. ‘Non-bank deposit takers’ such as finance companies tend to be riskier than banks.
The government does not guarantee bank deposits, but the Reserve Bank keeps an eye on how each bank is doing and requires them to publish their credit rating. This acts as a rough guide as to the likely risk of the bank failing.
Sorted’s investor kickstarter can help you work out a mix of investments based on what type of investor you are (your ‘investor profile’).