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Reading time: 3 minutes
When is a bank account the right place for your money?
Savings accounts and term deposits with a bank, credit union or building society are convenient for saving.
They’re relatively safe places to park our money and earn interest, and they are easy to manage and access. Bank accounts and term deposits are a great place for short-term savings, emergency funds, and managing your budget.
Returns on bank deposits aren’t as high as other types of investments, so while they're great for managing the day to day, they're not as powerful for long-term goals.
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.
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.
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.
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 profiler can help you work out a mix of investments based on what type of investor you are (your ‘investor profile’).
Guide
One of the best habits we can get into is “paying ourselves first” and making it automatic. The more we get into saving, the easier it is to achieve our goals and get ahead.
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Guide
Simply put, net worth is the difference between the value of what we own and the total amount that we owe. Why does it matter? It’s one way to tell if we’re really getting ahead.
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Guide
Investing is all about buying things that put money back into our pockets. Sound intimidating? It’s really not. Those of us who have a bank term deposit or are in KiwiSaver – we’re already investors!
We become investors when we put our money into things (assets) that can earn income or grow in value. The general aim is to earn a return that’s greater than any fees, taxes and inflation.
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Guide
When we buy a bond, we’re lending money to a government, council or company.
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Guide
Not just anyone can call themselves a financial adviser. They have to meet a certain standard of competence and put your interests first.
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Guide
Einstein called it the ‘eighth wonder of the world’. He was talking about compound interest, which supercharges our savings and investments. But it can also increase the cost of our debt. Either way, over the long run, we’re talking serious dosh!
The best compounding happens when any interest we earn gets reinvested and earns even more interest. It’s interest earning interest, and our money is working for us instead of us working for it!
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Guide
Lots of New Zealanders own rental property – it has been a popular form of investment over the years. The difference between an investment property and our own home is that we earn an income from it. Returns from property investment come from rental income and from any increase in the value of property over time.
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Guide
Instead of investing directly and doing it all ourselves, we can invest in a managed fund where our money is pooled with other investors’ money and spread across different kinds of investments. A fund manager chooses the investments, and each investor owns a portion of the total fund.
Managed funds can be a great way for beginners to wade into the waters of investing, as it doesn’t take much to get started. They also make it easier to manage risk by spreading our investments across a range of assets and products. KiwiSaver is a good example.
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Guide
To be successful with investing, it’s important to figure out what type of investor we are, which is sometimes called our “investor profile.”
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Guide
When we buy a share, we're buying a small part of a company and a share in any profit the company makes. We can buy shares directly or own them through a managed fund like KiwiSaver.
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