Kiwis are leaving money on the table, and it’s been going on for years. News and industry pundits have repeatedly encouraged the public to do their research when it comes to where they put their savings because not all banks are the same.
Out of 17 individual personal banks in New Zealand, only four are responsible for 88% of profits, according to data recently compiled by the New Zealand Commerce Commission as part of a new Market Study on the banking industry. The “big 4,” as they’re sometimes known, are Australian-owned subsidiaries. Their parent companies are also Australia’s largest four banks.
“More than a third of the money New Zealanders have in our Aussie-owned banks is earning us no interest - or virtually none. And it’s costing us somewhere between $400 million and $900 million a year in lost interest - depending on how you crunch the numbers. The banks know this - but it’s one of the reasons they are so very profitable in New Zealand. ”
Quarterly announcements of record-breaking profits have led some to question whether the banking industry in New Zealand is sufficiently competitive. [NZ Herald]. What’s more, with such impressive profits, it begs to question whether Kiwis are getting comparably high returns in terms of interest. Nikki Mandow, writing for Newsroom, estimated that over a third of the money sitting in Aussie-owned banks was missing out on “somewhere between $400-$900 million a year” in interest that could be going in Kiwi pockets.
Since then, we’ve been through a global pandemic and a steady hike in inflation. So, how have things changed? Apparently, not all that much. Christopher Walsh at Money Hub has done the hard mahi, sorting through all of the different savings accounts, and it’s New Zealand’s smaller banks offering customers the best deposit interest rates. Walsh also wrote for Stuff, urging Kiwis to stop accepting trivial returns from their savings accounts. Meanwhile, the big four continue to earn record-breaking profits with less compelling interest returns for savers and term-deposit holders.
Confusion as a Marketing Tactic 🤔
In 2019, Banking Ombudsman, Nicola Sladden, noted that they had seen “a number of complaints related to the way [savings] products were being sold.” Sladden said the Ombudsman provided feedback to the banks about better communication about their savings products for their customers.
Savings products are still a minefield. A Google search will reveal several guides to choosing a savings account to help customers decipher the different interest rates, minimum deposits, monthly deposit conditions and requirements for bonus interest. Not to mention the account fees and penalties. Then, there’s the difference between the type of account. On-call accounts, short-term-deposits and long-term deposits have different pros and cons that need to be considered, and even well-meaning diligent savers sometimes need to dig into the pot.
Leaving money on the table 💸
Nikkie Mandow’s words still ring true: “Life gets in the way of saving.” Especially now with sky-high inflation and every bill, grocery receipt and council rate charge costing more than before. Due to these complex savings schemes, many Kiwis are missing out on serious returns. Walsh wrote about someone who was only getting 70 cents per year on $5,000. Banks argue it’s not their fault if customers miss out on savings. So, what’s the point if the system isn’t designed to help you?
What if saving was just easy? 😌
What if banks just really empowered customers to grow their money? It’s not a radical idea. It’s logical. Customers should get the best deposit interest rate possible, with no fees for missing a deposit or penalties or lock-ups for withdrawals. You just put your money in the bank, and it grows. That’s what we want out of our savings products. It’s simple, really.
You might be interested in these previous articles:
- How Debut Generates Returns for its Customers
- Saving for a Rainy Day ☔️ | Debut
- Feature Spotlight: Savings Sheds | Debut
- The Best Money Management Tips for Beginners | Debut
A wealth of literature and data is available about saving money and what works. That’s why we feel it makes sense to build these tools right into Debut. We’re getting closer to our launch and cannot wait to share it with you.
If you haven’t already, be sure to join the waiting list, invite a friend or let us know what’s a banking problem you’d like to see us tackle. Let us know Backstage.
References
Bad things happen: Giving our money to the banks for nix - Nikki Mandow, Newsroom, Nov 29 2019
Best Savings Accounts - MoneyHub NZ
It's time to stop accepting zero returns from savings accounts | Stuff.co.nz - Christopher Walsh
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Please note, Debut is not a registered bank under the Banking (Prudential Supervision) Act. This is about our future intentions. Investments with us are not supervised currently by the Reserve Bank of New Zealand.
