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Investing
25 Mar 2024

How to get the best return on your cash

M329121-Evergreen-Email Mike Centred-v1.jpg By Mike Ross

One of the first recommendations we make to clients (after the recommendation to pay off high-interest debt) is to set aside some money as an emergency fund and ensure it is in a high-earning savings account.

To get the best interest rate on your emergency fund, and any other savings you have sitting in cash, you may have to open an account at another bank. While this isn't particularly difficult, it is a hurdle that stops many people from action. If you'd prefer to keep your funds at your current bank (whether due to loyalty or apathy) then it is likely that there are options where you can still achieve a higher interest rate than you get from your everyday transactional account.

Below we provide a table of accounts available at major NZ banks that are worthy of consideration for your cash savings, whether you're comfortable opening an account at another bank or just want to maximise your return with your existing one.

There are a few things to consider before opening a new account:

  1. The interest rate on offer shouldn’t be your only consideration. A bank's credit rating is also important as it indicates the likelihood that the bank will be able to meet its financial obligations, including repaying its depositors. In our table, we've only included banks with credit ratings of A ("strong") and above.
  2. Is the account available as a PIE account? A PIE account caps your tax at 28% and tends to be tax efficient for anybody who earns more than $48,000 and therefore has at least a 30% marginal tax rate. This can be particularly beneficial for people with a high tax rate of 39%. This is generally those earning more than $180,000 and (from 1 April 2024) trusts. As an example of the tax savings, for a 39% taxpayer who earns interest at 5% on their cash account:
    • Standard (non-PIE) account: After-tax return of 3.05%
    • PIE: After-tax return of 3.60%
  3. What conditions do you need to receive the interest? Many premium interest accounts will have specific conditions that you need to meet, or you will forego the interest. These conditions will often seem relatively easy (e.g. contribute $20 per month to the account). But they’re in place for a reason: providers know that many people won't achieve these criteria and so will receive a significantly lower (or no) interest payment. Automate any conditions if you can.

 

Note: The table only looks at savings options that allow you to (relatively) quickly access your funds, and so excludes term deposits and notice savers. If you don’t need the option to be able to quickly access your cash then these accounts will likely give you a higher interest rate.

The final line in the table lists a cash fund – The Kernel Cash Plus Fund – as an alternative for consideration. This fund invests in a range of short-term bonds and term deposits. It has slightly more risk than a savings account, but the risk is still minimal. It also takes longer to withdraw your funds than a savings account, but it comes with a significant return premium.

 Rates accurate as of 2 April 2024

Bank/Provider

Account Type

Credit Rating

Current Interest Rate

PIE Available?

Conditions

ANZ

Serious Saver

AA-

4.50%

No

No withdrawals and contribute  $20 per month or rate drops to 1.25%.

ASB

Savings Plus

AA-

5.00%

No

Limited to one withdrawal each quarter.

BNZ

Rapid Save

AA-

4.55%

No

Limited to one withdrawal per month.

Kiwibank

Online Call

AA

4.50%

Yes

None.

Rabobank

Premium Saver

A

5.25%

No

Contribute $50 per month or rate drops to 2.5%. Account limit of $100k.

Rabobank

RaboSaver

A

4.25%

No

None.

TSB Bank

Websaver

A-

4.20%

No

None.

Westpac

Westpac Bonus Saver

AA-

4.50%

No

Contribute $20 per month or rate drops to 1%.

Kernel

Kernel Cash Plus Fund

A*

6.13%

Yes

2-3 days to withdraw.

* This is the average credit rating of the investments in the fund, rather than the credit rating of Kernel

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