New Zealanders Are Sitting on Billions in Lost Interest – Is Your Money Working For You?
Nearly $1.2 billion. That’s the estimated amount New Zealand savers are collectively missing out on each year by keeping their money in transaction accounts that earn zero interest. As the cost of living continues to rise, and banks quietly chip away at savings rates, it’s a startling figure that demands attention. But the issue isn’t just about the money already lost; it’s about a growing trend that could see even more Kiwis inadvertently funding bank profits while their own financial goals stall.
The Rise of the ‘Lazy’ Transaction Account
Before the COVID-19 pandemic, around $28 billion was held in transaction accounts across New Zealand. While these accounts are essential for day-to-day expenses, balances have swelled significantly, peaking at $53 billion when interest rates were near zero. Now, even with rates fluctuating, around $39 billion remains parked in accounts earning nothing, according to Squirrel Mortgages CEO David Cunningham. This isn’t necessarily about having more money; it’s about where that money is.
“You’re always going to need some float in your transaction accounts, but a lot of this is lazy money,” Cunningham explains. Customer inertia – simply not bothering to move funds – is a major driver, allowing banks to benefit from the funds held without offering any return. This highlights a systemic issue: banks aren’t actively incentivizing customers to optimize their savings.
Why Are We Doing This to Ourselves?
Banking expert Claire Matthews from Massey University points to several factors. Ease of access is a key drawcard. People worry about potential fees associated with accessing funds in savings accounts, or simply underestimate the potential gains from earning interest. “Partly, I think it’s because they don’t think the interest will be worth it – but they may not have actually looked at the numbers,” she says. And, frankly, life gets in the way. It’s easy to put off a task that feels minor, even if the cumulative effect is substantial.
The Shifting Landscape of Savings Rates
The situation is further complicated by recent cuts to term deposit and savings account rates. Westpac and ASB have both reduced rates this week, with ASB’s Headstart account now offering just 2.7%. This trend, following the official cash rate reduction, means the gap between earning nothing in a transaction account and earning a modest return elsewhere is narrowing – but a return is still a return. It’s a critical time to reassess where your money is held.
Beyond Transaction Accounts: The Impact on Other Savings Vehicles
The reluctance to move funds extends beyond transaction accounts. Lower rates on term deposits and traditional savings accounts are prompting many to explore alternative investment options. However, this also carries risks. The current economic climate demands a careful balance between seeking returns and preserving capital. Sorted.org.nz offers independent financial advice and tools to help New Zealanders make informed decisions.
Future Trends: Personalized Banking and Proactive Prompts
The current situation isn’t sustainable. Expect to see increasing pressure on banks to be more transparent and proactive in helping customers optimize their finances. Cunningham suggests a simple solution: “Every time you log in, they could remind you that you’ve got say $20,000 in a transaction account earning nothing, and if you moved it to savings you could earn x… that would be a way to make sure people were better off.”
This points to a future of more personalized banking experiences, driven by data analytics and artificial intelligence. Banks will likely leverage customer data to identify opportunities for savings optimization and offer tailored recommendations. We may also see the emergence of “smart” accounts that automatically sweep excess funds from transaction accounts into higher-yielding savings options. However, the onus ultimately remains on the individual to take control of their finances.
The era of passively accepting zero interest is coming to an end. With billions of dollars at stake, New Zealanders need to actively review their banking habits and ensure their money is working as hard as they are. What small changes can you make today to unlock the potential of your savings?
