Mastering Your Credit Card

Credit cards can be a force for evil or a force for good.

One path leads you down the road of mindless overspending and monthly interest charges. The other path leads to points, freebies, reduced fees and increased happiness.

So for years I used my credit cards wrong. Completely wrong. As soon as my paycheck ran out I would put any purchases on the credit card. Leading to a bill at the end of the month. Then I would have to spend most of my next paycheck trying to pay it off, which lead to me being broke and ….you guessed it, putting more purchases on the credit card. Eventually I was thousands of dollars in debt. (That’s a whole other blog post.)

I think credit cards are difficult for a lot of people to manage, the temptation to spend that available credit is high.

So whats the answer? Well as my rich co-worker says “Credit cards are easy, you just pay them every month when the bill comes”

Well DUH.

Is that like the weight loss advice “just eat less….duh”. Uh thanks, I never though of that *eyeroll

For both these problems the answer is simple but in practice not at all easy.

In reality we have to apply some strategies and new ways of thinking to really master the situation

In order to get the most out of your credit card you do actually need to pay it off each month. I suggest that you pay as you go rather than waiting for the surprise bill 30 days later. Every time you make a purchase transfer the amount from your checking account over to your credit card. No money in checking? Then NO PURCHASE FOR YOU. This is a way to start building discipline with credit card spending and never letting yourself get into credit card debt.

These days there are a variety of cards available including no fees, low interest or platinum cards with built in travel insurance (a nice saving if you plan to travel overseas soon). I like platinum cards as I’m a bit of a reward chaser.

Platinum Airpoints Credit Card

However most great points/air miles earning cards have big fat fees. You’ve got to wonder if the fees are going to cancel out any points you might earn. So you do have to do a little math. How much money are you going to funnel through the card and are the rewards worth more than the fee. Credit cards compare NZ does a good job of rounding up all the different types credit cards available in New Zealand and is a good place to start if you are looking for a card.

Haggle those fees, call them up, tell them you are looking at a variety of new credit card options and are their fees negotiable? You don’t know if you don’t ask. If you have other business with the bank like a mortgage or term deposits they may be even more willing to negotiate fees with you. Every fee eats in to the value of the rewards so its important to try and get these as low as possible.

A lot of credit card companies are going to try sign you up for repayment insurance if you’re paying it off as you go then you don’t need this.

Once you feel like you’ve mastered credit card discipline you can start maximizing rewards. Put all your purchases through the credit card (excluding those that charge extra for credit card transactions), groceries, petrol, bills (energy online lets you pay your power bill with a credit card through an app with no extra charges), work expenses that you can claim back, all household spending should go through the card. You’ll be surprised how quickly it all adds up. Keep an eye out for bonus days where purchases can earn you double or triple airpoints. We’ve enjoyed thousands of airpoints over the years just by mindfully spending with the credit card.

Even though we are dedicated to paying our mortgage down early and building our savings we have also enjoyed small holidays around New Zealand thanks to rewards earned on the credit cards. We’ve even used points to purchase a Air New Zealand Koru membership (lounge access, extra baggage allowance) for that extra feeling of luxury while traveling. My feeling is that it’s certainly been worth our while.

 

October Dividends and a Hostile Takeover

So all the dividends have finally reached my bank account and anything not set up for automatic dividend re-investment has been combined with some cash in my brokerage account and invested back into the MDZ index fund.

Single Stocks
Michael Hill $48.06
Meridian energy $149.20
Auckland airport $15.16
PGG Wrightson $56.95
Mercury Energy $88.88
Metlife care $8.15
Abano healthcare $24.27

Index funds (Smartshares)
MDZ $135.15
MZY $29.55
DIV $55.00

Total $665.37 (After tax has been paid!)

I love dividends, I love them soo much. It really feels like the only true passive income, I don’t have to do anything as long as the company does well I do well. Passive income is a magical thing and is an essential part of any financial independence or early retirement plan. I finally have money that is making me more money. You can read about how to buy shares and get started investing in the New Zealand share market in my previous post “So you want to buy some shares……”

Total Dividends for 2016 $1037.17

I’m pretty pleased with the dividends this year and its after tax too! Making a grand for doing nothing is a sweet deal. It doesn’t even seem real. It certainly makes up for the mild melancholy that takes over when the market is going into bear mode. I’ve stopped checking my portfolio on my breaks at work, I was obsessing and its better that I just chill and keep to the plan. $500 a month, every month invested into index funds. I’m keeping it simple from now on, no more single stock purchases!

The New Zealand Share market has been on a downward trend for the last few months, but I had one little bright spark. Abano healthcare become the subject of a hostile takeover on Friday afternoon and the share price jumped from $7.60 to $9.00 in less than an hour. It was pretty exciting to watch and word is they are paying $10 a share to try acquire 50.1% of the company. I’m not really sure what that means for a little minor shareholder like me, lets just say no one’s calling me on the phone to try buy my shares just yet, but it was quite a fun afternoon for an amateur investor.

 

What’s it like switching Kiwisaver providers?

Have you ever moved your retirement savings? I recently switched to new kiwisaver provider Simplicity and here’s how it went.

Contemplation

I first started thinking about switching kiwisaver providers when I wrote this post about kiwisaver fees. New Zealanders don’t have many options for super low fee retirement funds. My current provider Kiwiwealth while very open and transparent still charged 1.17% in fees. This is (shockingly) below average. Many providers are charging a lot more than this!

Last month a new kiwisaver provider started showing up in the local newspapers. Simplicity claimed very low fees of 0.31%, they are owned by a charitable trust and a 1/3 of their management fees are donated to charity. Its an easy sell, sounds great on paper. Oh and they mostly use index funds, so nice and diverse.

Simplicity Kiwisaver provider

The Switch

I was intrigued, a low fee fund finally on offer in New Zealand! After reading a bit more information on their website (including the product disclosure statement) I boldly decided to make the switch. Simplicity makes it easy to switch, you have to provide your IRD number and upload some identification (scanned my passport). Painless and after that it’s all in their capable hands. Like all good decisions it was made on a Sunday afternoon. I’d been with Kiwiwealth since I first joined kiwisaver, leaving was hard, for the most part they were pretty good but in the last year my balance had flat-lined. I also learned that they don’t invest in New Zealand shares at all. Which didn’t sit well with me and maybe that’s not very rational, but I like to think we have a few companies here in New Zealand doing exciting things. Show a little faith in your home economy!



 

Patience and Denial

The days dragged on, I paced, I checked my emails constantly. I logged into my old provider most days to see if the balance had been transferred. I got a reassuring email from Simplicity letting me know that yes things are happening but it might take some time, apparently your old provider has 35 days to transfer the funds! That’s working days, so its 7 weeks to get their arses into gear.  Finally on day 13 something actually happened, I was LOCKED OUT of my Kiwiwealth account. Now I know my money is (likely) no longer with them and I’m no longer a client but it seems just a little passive aggressive to delete my login credentials. There wasn’t a “Sorry to see you go email” or even a plea for me to stay. No communication, apparently I’m dead to them now.

What the hell

At lunchtime on working day 15 I got notification from the IRD that they will be forwarding money from my paycheque to Simplicity, yay things are moving along. Meantime no idea where my money is. For 2 days my money has been in the ether, drifting. How do they transfer it anyway? Send a check, money order, bank transfer? Its a mystery.

Resolution

Anyway I got home after work and there was a letter from Kiwiwealth, finally communication! It was a statement of my accounts letting me know how much money would be moving over to Simplicity and that they were sorry to see me go. Thanks guys, I was really hurt when you locked me out. I missed the chance to down load my historical info and how can I geek out on my savings numbers now? Thankfully I had loaded some annual info into a spreadsheet so I can make graphs to my hearts content.

Later in the evening I got an email from Simplicity announcing that my account was active! I logged in and all my cash was there. They did let me know that the deductions from my paycheck were not occurring just yet, but I had the notification from IRD so I know its in the process of being sorted out.

So overall not too painful, 3 weeks of limbo and then bam, all done. Although they legally could take up to 35 days it only took 15, so not super speedy but not terrible either.

 

Credit Scores – Now With Instant Access

In New Zealand you’ve always been able to see your credit score, however you had to be prepared to wait a while and fill out some tedious forms and watch the mail box. I never bothered because I’ve never been denied credit so I just assumed it was OK.

Credit simple have come along and they make checking your credit score really easy, like just type in your drivers license number easy. In about 3 minutes I had my credit score, a respectable 740 putting me in the top 4% of people my age (and beating my husband by 8 points which he is absolutely gutted about). Nice I guess. Actually I’m kinda proud, I wanna put it on a t shirt! However New Zealand doesn’t do too much in the way of adjusting your mortgage rate based on your credit score so I’m not going to be offered a super low mortgage rate tomorrow despite my brilliant score.

New Zealanders on the whole don’t really understand credit scores that well and hardly anyone knows about them.

– 92 per cent of Kiwis don’t know their credit rating
– 72 per cent don’t know what a credit rating is
– Only 13 per cent have ever ordered their full credit file
– But when asked 84 per cent of people said they were “interested” to know theirs

Credit simple have done a pretty good job of promoting the new service and all of a sudden my social media feeds are filled with people checking out their credit scores, some are bitterly disappointed and others still not quite understanding what its all about.

The comments on twitter and Facebook would have been hilarious if they didn’t show up how ignorant we are of credit scores. So far I’ve seen it assumed that..

  • your star sign affects your credit score
  • your gender affects your credit score
  • the score is calculated based on the information you give to the website to identify yourself
  • that credit simple is using the website to track down people for debt collectors
  • its a giant social experiment to see how many people will put their identity details into a website

star sign does not affect your credit score!

I guess its nice to see a bit of skepticism when it comes to divulging information online. That is some small consolation.

Check your credit score online NZ

 

Credit simple are also coping a bit of flak for adding links to credit card and loan offers. Some are seeing it as preying on those with bad credit, but advertising is advertising. I expect to see adverts everywhere and when you are getting free instant access to your credit score then of course there are going to be adverts to offset the cost of running the site.

 



Instant access to your credit score (with no penalty) is long overdue. I think its great that this company was forward thinking enough to get rid of the ridiculous delays.

Most Kiwi’s only find out they have a bad score if they get denied for consumer debt and now there’s a little bit of a buzz around it. Anything that gets people to take a more active interest in their finances is a good thing in my book.

 

 

How to be an Effective Saver

We all want to be super savers, but how do you get “good” at saving? Practise is a big part of it, you can’t help but get better at what you do often. Until the savings habit becomes a deep ingrained part of your psyche I thought I’d help you out by sharing some of the strategies I’ve used over the years to help me be a better saver. They’ve worked well for me but everyone has a different savings mojo.

Computers are our friends, let them do the work for you.

Automate – We already have so much to think about so make life easier on yourself and automate your savings. Have a portion of your paycheque go straight into your savings account. There’s no chance that you’ll forget some weeks and it won’t become a chore you have to remember to do every time you get paid.

Why are you even saving?

Save with purpose – Set savings goals, you might need an emergency fund, long term savings for retirement an short term savings for big ticket items, house deposit or a holiday. Keep emergency funds and long term savings separate. Savings for retirement need to grow so never dip into that stash of money. And how about taking it a level deeper, yes retiring early and establishing an emergency fund are excellent reasons for saving. But why do you really want an emergency fund? Why do you want to retire early. Take some time to think over the kind of financial situation you want for yourself and why.

You are your own worst enemy

Keep those dollars at arms length – If a nice fat bank balance is too tempting for you then open a savings account that is a bit trickier to access. Try another bank or an online only account. You don’t want to be able to flick money over to spend instantly when you are faced with temptation. If it takes a day to transfer over hopefully that will dissuade you from some impulse purchases! Don’t link the account to any cards.

 Bank your windfalls

Add pay rises to your automated savings – you won’t miss what you’ve never had. So don’t let pay increases lead to lifestyle inflation. Instead up the automated savings amount to match the pay increase.

Money

Grow cash GROW!

Money’s got to have a job, no lazy money! – Once you’ve built up some savings put those dollars to work. Don’t leave tempting piles of cash around as you might start to feel those dollar burning a hole in your pocket. A huge balance might make you feel wealthier but you can’t spend those dollars just yet, you need to grow them even more! Invest the cash into income producing assets, shares, index funds, property, bonds etc.

Squeeze out a few more dollars, you can do it!

Save everyday – Did you skip buying your lunch, did you negotiate a discount on a regular bill? Transfer those day to day savings out of your transaction account and into your savings as you go. Not only do you get the great feeling of scoring a deal your savings balance goes up as well. Twice the rewards!

Saving gets easier the more you practise, but one final thought. Saving can also become exhausting. A little mad money for guilt free splurges will help keep you sane and keep your savings on track. Good luck!

 

Small Time Dividends – Don’t let them Escape!

Today I got my Abano Healthcare dividend. It was approximately $29 or enough to buy a 6 pack of craft beer and 500ml bottle of something special on the side. Yum! But drinking my profits was never the plan (well one day maybe).

Abano Health share price graph
Its been a fun 6 months or so, I bought in around $6.70, thanks Abano

So no beer for me because I have the dividend re-investment plan activated. My money has automagically turned into 3 more shares. Every 6 months the dividends are used to purchase more shares on my behalf and any remaining money is rolled over till the next 6 months.

Dividend re-investment plans work really well in New Zealand for a couple of reasons.

  1. We currently  have no capital gains tax. This means that these small amounts of money aren’t going to become a pain in your ass years down the track when you need to calculate your capital gains on all the small share buys.
  2. Brokerage fees here are really HIGH! It costs a lot to make a trade so anytime you can buy shares for free is a win in my book.

So if you’ve been wondering what to do with all your little dividends get online and check if the company has a DRP or Dividend re-investment program. Its way better than receiving a cheque (argh so inconvenient!) or having the measly $29 sit in your account doing nothing and not earning its keep. Dividend re-investment is already happening for most of you in your kiwisaver accounts and probably in your index funds as well (unless you checked the dividend pay out box!).

Out of sight out of mind, it happens with out any extra input and that tiny dividend is no longer tempting you to buy some craft beer that your waistline doesn’t need! Make sure your money makes you more money by keeping it invested. It’s the aim of the FIRE game and it will get you the the finish line faster.

 

I’ve Paid off my Maxed out Credit card – Twice!

Some lessons in life are hard to learn. So hard that you have to learn them twice. Credit card management is definitely one of them.

The first credit card I got was handed over to me with little ceremony when I was a student. It was my second year and I’d moved out of the halls of residence and into my very first flat on Cook st.

My campus had a branch of the National bank down by the (man-made) lake (full of huge eels that would eat the baby ducks) and students were eligible for an interest free $1000 overdraft and a credit card with a $500 limit. For a broke student it was just free money, I figured it would be easy to pay back once I graduated and started earning my kick ass amazingly high wage. (Yeah right, turns out science graduates aren’t nearly as in demand as I thought).

Some of the $1000 went on text books, I bought a woolen electric underblankets (it was a cold town!) and heaps of beer, takeways and …….. well I can’t really remember where the rest of it went. It just went! I probably bought CD’s and cool posters for my room.

Poster- Picasso Print

It wasn’t long before everything was maxed out. Each week my student allowance came in plus a little side income from working in a lab downtown. I paid my rent and everything else went into the overdraft but before the next pay day the overdraft was maxed out again. It wasn’t till a I finished university and finally got a full time job that I was able to pay it all back. Each fortnight I had to call the bank and ask them to reduce the overdraft by a measly $50. I learned the overdraft lesson and never used one ever again. The weeks dragging by and the embarrassing calls to my banking manger left a lasting impression.

The credit card however had no such lesson, the payments to visa were to this vague external entity. I never met anyone from visa and I never had to call. In fact I think they even increased my limit once I started working full time.

Fast forward to 7 years later and I was still always carrying a credit card balance. I thought it was normal. By now I had a limit of $3000 and things were getting dangerously close to that limit. The first hint that I wasn’t exactly managing things was when I made my first call to visa. I wanted a limit increase for a trip to vegas “just in case”. Just in case what I’ll never know because they turned me down. I had made a large cash withdrawal the week before. I mistakenly paid too much off the card that fortnight and hadn’t calculated enough reserves to make rent! The bank wasn’t too impressed with my money management skills.

After the trip added even more debt to my card I decided I had to tackle the debt. Each pay day I paid the bills that had to be in cash (e.g rent) then every single left over dollar went on the credit card. No cash left in checking, everything was now on the credit card. It was a huge payment and each payday bought the promise of progress. But I still had groceries and petrol to buy so I would use the credit card. It was a 3 steps forward 2 steps back kind of deal but I got there in the end.

The second time I maxed out my credit card was way worse. It involved spending money on family, spending more than I earned on day to day expenses and having nothing to show for $12,000 worth of debt. Yep twelve grand. It happened over several years. I didn’t buy myself clothes or gadgets or things like that. But I bought movie tickets, takeaway pizza’s, groceries, dinners out and a trip to the Gold coast for my partner and their children. So in the end I had massive debt and no assets to show for it. Deeply ashamed I hid my debt from everyone. I carried on as if everything was normal with this huge debt anxiety in the background.

This time I transferred the debt to a credit card with 0% interest for the first 6 months. After 6 months I transferred to a card with the same bank with a low interest rate (about 1/2 the standard rate). It took me about 3 years to get it under control. During those years I paid my mortgage and invested in kiwisaver. I bought shares but I didn’t mange any cash savings. Once I got the balance down to $1000 I started to save cash. Actual cash reserves. Looking back I was lucky to have a good paying job and to manage the rest of my money so I never got behind in repayments. It never became an “issue” or stopped me from being able to afford rent, power, food etc. It could have been a lot worse.

Now I pay the balance in full on my card every time I get paid. Transfer over enough money to zero that balance and sometimes it hurts the checking account a little because I’ve spent more than I thought. Even now spending on the plastic doesn’t trigger the feeling of spending my own money. Its a future me problem not a today me problem.

So thats my consumer debt story, going through the painful repayment process taught me a lot about money and how I interact with with it. So for that I am grateful. (Obviously I would rather not have spent the money and have it investments but we’ve always got to look for the silver lining).

 

 

 

8 Reasons I Hate Credit Cards

I can’t believe I said credit cards, plural. I mean who needs more than one credit card? New Zealand credit card users have 2.2 credits each. American users have 3.7 cards each! Actually I can think of a reason to have two credit cards, when my partner and I travel we take two cards (thats one each) from different providers in case a certain brand of card isn’t accepted or on the small chance there is a problem with transactions for one of the companies. People hacking the rewards/points often have multiple cards. I get it, the rewards are nice, its especially nice to be rewarded for your boring every day spending.

I use a credit card but I have a love/hate affair with credit cards. I love that they let me order things from oversea’s and collect airpoints. I hate that I sometimes forget purchases made on my credit card and have to pay more than I anticipated to get the balance back to zero.

  1. Credit cards are very dangerous. Its easy to view that line of credit as “money available to spend” and easier to forget that its not really your money. My online credit card always shows the available balance as $10,000! But that’s not right I don’t have $10,000! Its just $10,000 the bank is willing to lend me. This kind of psychological trickery really infuriates me. The balance should be ZERO.

    Evil credit cards
    Put it on the plastic, worry about it later.
  2. They get away with ridiculous interest rates. 21.95% interest WTF. Yep I’ve seen them that high. Why do we accept this kind of loan sharkery? Somehow this has become the norm. Interest rates around the 20% mark severely punish the inexperienced credit card user.
  3. No one tells the user that they are not supposed to carry a balance. You shouldn’t carry forward any credit card debt from month to month. If you are you should cut up the card NOW. You can’t get ahead paying 20% interest on debt each month.
  4. Minimum payment pfffft whatever. If you pay the minimum you may as well say ” I wanna stay in debt forever” cause paying the minimum don;t do jack towards the debt when the interest rate is 20%. But somehow seeing that minimum figure on the statement and then paying it actually makes us feel good, like we are fulfilling our obligations. More psychological trickery.
  5. The bastards will increase your limit without asking your permission enabling chronic spenders to get even further into debt. I once rang the company and asked them to reduce my limit and I was cooley informed that I better not ever ask for a limit raise as it may not be available to me in the future! Well thanks mate. I guess you don’t want financially responsible customers.
  6. I’ve yet to meet a person who was able to manage their credit card successfully from day one. Everyone I’ve been brave enough to talk to about it has at some point in their life carried a balance, had to pay interest, or let their spending get out of control. That learning curve has got a lot of young people into trouble over the years including me! Getting a credit card at 18 was probably one of the worst things to happen to me (financially that is!).
  7. The fee’s for accepting credit cards are high, much higher than using your regular eftpos/debit card. While the eftpos card transaction are charged at a flat rate per month (usually built into the equipment rental) retailers are paying 1.7% of the transaction in fees and its really hurting smaller retailers with slim margins. So who is really paying for your credit card rewards? Maybe the retailers are bearing that cost, maybe everything would just be a little bit cheaper if there were no credit cards.
  8. Transactions take a few day to show up in my online statement. I have a hard time understanding this as EFTPOS transactions show immediately and I can see where and when I spent my money. With the credit card the balance is updated instantly but the detailed transaction line showing when and where the purchase took place doesn’t show up for a couple of days. It really frustrates me as I like to track every expense and if I lost the receipt on the way home….(trust me this happens I am very disorganised) I have to try remember the exact details and then wait a few days before I can update my spending tracker.

Fees – The Stealthy Kiwisaver Killer

“An investor with $1.00 invested in 1900 would have seen his dollar grow to over $1,000 in real terms, if they had paid the industry average of 3% in management, monitoring, performance and trading fees then the real terminal sum would drop to just $37.40”

The New Zealand sharemarket on average has returned 10.0% p.a from 1900 to 2015 (Yes, we are awesome, send us all your moneys). If you invested $1 in 1900 in shares with no ongoing fees you would have around $64,000 in today’s dollars or $1027 adjusted for inflation. In a fund with fee’s you would only have $37. Staggering difference. Would you rather have $37 or $1027? It’s a no brainer.

If you only read this one line then know this – Fees matter!

I only know this little tidbit of wisdom because Brent Sheather wrote a brilliant opinion piece for the NZ Herald titled “NZ shares vs the rest of the world”, within the article are some sparkling gems of information and the one that stood the most was the topic of fees. In fact the article should have been called “Kiwisaver Fees and how they’re stealing your retirement!” and maybe it would have got a bit more attention.

Kiwisaver accounts (and managed funds) are charging us huge fees for managing our money and fair enough you may argue. Nothing in life is free. But when Kingfisher funds can pay themselves a 1 million dollar performance fee payment on a fund that only returned 4.3% (the sharemarket returned 16.5% over the same period) then something is horribly wrong.

Shadow hoping and praying for ethical money mangers
Hope like hell you have an ethical Kiwisaver provider!

Consumers of investment “products” are not always getting value for money and are not always aware of how the fees are charged. We are all  very trusting of our Kiwisaver providers to do the right thing by us, they are the custodians of our futures, determining by their stewardship just how much money we will have to spend during our golden years. But they are clearly making bank along the way, taking a % cut of our total savings each year.

I’d like to think that the fee’s would only come out of the profits or gains that the fund makes but sadly this is not the case. That scenario could leave providers making zero dollars in recession years. There are obviously baseline costs for administering funds that need to be covered so performance only fees are not entirely fair either, but does it cost anymore to manage $1 million in kiwisaver funds than to manage ten thousand? The money is all going into large generic funds and individuals are not receiving personalised investment services. So shouldn’t each customer pay a flat fee? But this would penalise those with smaller amounts invested. Perhaps percentage fees up till a certain amount invested then a flat fee there after?

I’m not sure what the best way to go is, but I can tell you I’ve had excellent returns from very low fee index funds and like Brent says, the computer managing it has never paid itself a one million dollar performance fee for barely beating inflation.

I checked out Sorted.org’s fund comparison tool and found the lowest fee’s for a kiwsaver fund was 0.31% for the Superlife NZ50 ETF (which returned 12.75% in the last year, nice). The highest fee’s charged are 4.74% for NZ funds Growth Strategy fund (-10.9% return in the last year but to be fair a +22% the year before that). That’s a massive range of fee’s and returns, clearly it pays to dig a little deeper and find out exactly what fees you are paying.

If consumers want change then its going to have to be demand driven. Start comparing funds, look hard at those fees and be prepared to move your money to a lower cost fund. If you do switch, let your fund manager know why! Let family and friends know that fee’s are a really important consideration when choosing their Kiwisaver provider or any investment fund. (Cause everyone loves talking money with family and friends right!)

Luckily the Financial Markets Authority is on our side as Tasman Parker reported this week in the NZ Herald. Her article “FMA warns – don’t treat KiwiSavers as ‘cash cows'” reported on several concerns of the FMA including fees and lack of confidence from kiwisaver investors in the market.

Rob Everett, chief executive of the Financial Markets Authority, said KiwiSaver providers could not afford to treat members as “cash cows” raking in millions of dollars in fees a year without doing anything to communicate with them other than the minimum.

 

You tell em Rob!! We need institutions to challenge the big providers to do better, the more pressure the better.

Is Your Cash Working as Hard as You?

You work hard for your money, yet money sitting in the bank isn’t working hard at all. Low interest rates these days are frustrating for savers and those living off their savings (like retired folk), lucky for us inflation is also low so the value of our money is holy steady.
I feel like I worked extra hard for every dollar I saved, those dollars represent a lot of time and sacrifice. So why would I just leave them in any old savings account. Yet so many of us do! Its so easy just to park the money in whatever account our main bank offers. Now I spent almost a week researching which new sheets to buy so why not spend some time researching the options for stashing my cash!

People who work hard need to think about where to put their savings
You work hard! Don’t spend more time thinking about your coffee order than where to park that cash!

The best way to make your money grow is investing, but it also makes sense to keep some easily available in cash or to invest a portion of your money conservatively in things like term deposits.

So how can you make your cash grow in a low risk way?

Below are some idea’s which might be more relevant for New Zealanders but the point is you can’t just settle for the crappy interest rate your main bank gives you. There are other options with similar is profiles with better returns. Get out there and starting hunting out a better deal!

Shop around for term deposits. You don’t need to stick with your bank, your savings account may only offer 0.5% but there are still term deposits as high as 3.8% to be had. Interest.co.nz has lists of all banking institutions (along with their credit rating) and the term deposit interest rates they offer.

For even better returns you could look to peer 2 peer lending. It is riskier as their can be defaults but some lenders like squirrel offer loan repayment protection so if the borrower defaults you will still get your loans repaid. This makes it a very safe vehicle for investing with much higher returns, my average interest rate with squirrel is currently 8.25%. Be aware that these investments are not liquid and not really a great place to stash cash but you are paid back principal and interest on the investment each month. I mention it because It could be a useful tool for setting up a monthly income stream in retirement.

Banks are now offering cash PIE (Portfolio Investment entity) funds, these funds attract a lower rate of tax so they are a good option if you are in the top tax bracket. (The maximum PIE rate 28% tax while the top income bracket in New Zealand is 33% tax). You can have cash in on call accounts or term deposits as a PIE fund.

New Zealand's favourite PIE, Mince (beef) and cheese
New Zealand’s favourite PIE, Mince (beef) and cheese

Regular savings accounts have really low interest rates right now but if you are willing to look at alternate banks to the big names or credit unions you’ll be able to find rates as high as 3%. Some places are going to require a minimum amount saved before that interest rate applies but some places are offering great rates from the first $1 e.g. Heartland bank are offering 3% from the first dollar saved!

Bonus savings accounts can be a way for the disciplined saver to maximise their interest earnings. Usually there is bonus interest applied each month if the monthly deposit minimum is met and there are NO withdrawals. The pitfall with these types of accounts is that without the bonus interest you don’t really get a return because the base interest rate is so low. If you need to access the money for an emergency that month or to take advantage of a great investment deal you could be forfeiting most of your return.

Theres a big difference between 0.5% and 3% return, so park your cash wisely, mark sure your dollars are working as hard as they can and don’t leave potential returns on the table.