Key Takeaways
- Some of New Zealand’s savings accounts are paying as little as 0.05% in interest, with the main banks offering products with very little return.
- The average rate across the market for unconditional savings accounts is just over 1%, according to Reserve Bank data.
- New Zealanders have almost $120 billion in savings accounts, with many people leaving money in low-paying accounts that provide a lucrative income stream for banks.
- The importance of finding a high interest rate varies by age and income, with mid-life individuals prioritizing high interest rates and older individuals prioritizing stability and access to savings.
- Inertia and a lack of effort to make changes are common reasons why people do not look for better savings account deals.
Introduction to Low-Interest Savings Accounts
New Zealand’s savings account market has been found to have some of the least generous interest rates, with some accounts paying as little as 0.05% in interest. A survey of bank rates revealed that the main banks have a number of products that offer very little return, with ASB’s Savings On Call account offering 0.1% and ANZ’s Select account paying 0.05% on balances over $5,000. Westpac’s Simple Saver also pays 0.05%, with customers receiving "nudge" emails if they have higher balances to remind them of other options. Co-Operative’s Smile On Call account pays 0.1% to balances over $4,000. These low-interest rates are a concern, especially considering that New Zealanders have almost $120 billion in savings accounts, a total that has increased over the past year.
The Impact of Low-Interest Rates on Consumers
The low-interest rates offered by some savings accounts can have a significant impact on consumers, particularly those who have a large amount of money saved. According to Reserve Bank data, the average rate across the market for unconditional savings accounts is just over 1%, which is significantly higher than the rates offered by some of the accounts mentioned earlier. Squirrel chief executive David Cunningham has previously stated that people leaving money in low-paying accounts provide a lucrative income stream for the banks. This is because the banks can use the deposited funds to lend to other customers at higher interest rates, earning a profit from the difference. Banking expert at Massey University Claire Matthews, who has money in a Westpac Simple Saver account, has realized the low interest rate and plans to make a change. She notes that the interest rate on her account changed substantially over 2025 as the Official Cash Rate (OCR) was cut and interest rates fell.
Factors Influencing Savings Account Choices
Research by the Financial Markets Authority (FMA) has shown that the importance of finding a high interest rate varies by age and income. Across all age groups, people said that the highest interest rate was the most important factor in choosing a savings account. However, for those aged 65 to 74, the stability of the rate and how easy it was to access savings were equally important. The FMA also found that the self-reported importance of finding a high interest rate peaked in midlife and declined thereafter as people began to attach more importance to other factors. Lower-income earners also placed more importance on the ability to access savings than the rate they were getting. The self-reported importance of a high interest rate increased with income, to a point, while the importance of access declined with income.
Why People Don’t Look for Better Deals
So, why do people not look for better savings account deals? According to Claire Matthews, there could be a few reasons. "Speaking personally, it is inertia – as far as I’m aware you can’t now open a Simple Saver with Westpac, so I don’t believe anyone would be actively choosing it. It’s possibly the same with similar accounts at other banks." Infometrics chief executive Brad Olsen agrees, noting that people might like the security of knowing they could access their money easily. "People are clearly sometimes willing to compromise returns for access. There’s a wider conversation – people often talk about the lazy tax and how there’s all these people who pay the lazy tax because they don’t move their bank account, they don’t move their power bill or don’t move their internet or whatever. In dollar terms I completely understand it, but as someone who’s also tried to adjust some of these settings myself – it can sometimes take so much time." Olsen also notes that it can take a lot of effort to make a change, which can be a deterrent for some people.
The Importance of Reviewing Savings Accounts
It is essential for individuals to review their savings accounts regularly to ensure they are getting the best possible interest rate. With almost $120 billion in savings accounts, it is crucial that people are aware of the interest rates they are earning and explore other options if necessary. As Brad Olsen notes, "if you’ve got half your savings or something in it and you’re hoarding that to buy a house or whatever and it’s not getting any interest, what’s the point there?" By taking the time to review their savings accounts and explore other options, individuals can potentially earn higher interest rates and make the most of their savings. Additionally, it is essential to consider the fees associated with savings accounts, as well as the terms and conditions, to ensure that the account meets their individual needs. By being informed and proactive, individuals can make the most of their savings and achieve their financial goals.
