Cash investments are relatively safe because you’re promised a fixed interest rate. But interest rates tend to be low, so they’re not always the best option – particularly if you’re saving for retirement.
About cash investments
Cash investments include savings accounts and term deposits with a bank, credit union or building society. You can also invest cash through a managed fund (this includes KiwiSaver) which pools together money from individuals for investments, managed by a fund manager.
Savings accounts and term deposits typically guarantee a set level of interest each year. Most basic savings accounts allow you to withdraw your money whenever you want it. A term deposit offers a higher interest rate but you may have to forgo your interest or get lower interest if you withdraw your money before the term finishes. Term deposits can range from three months to five years.
Understanding the risks
Cash investments are considered low-risk but usually, offer a low-interest rate.
If you have a long-term goal, such as saving towards your retirement, there’s a risk that your money won’t grow as fast as the cost of living. This is known as inflation risk. If inflation increases more than the returns on your investment, your money will have less buying power when you need it.
We don't regulate savings accounts or term deposits but we do regulate managed fund providers.
Things to look out for
Fees vary between providers
Providers’ fees vary and depend on the accounts you choose. Generally, accounts offering higher interest also tend to have conditions attached, such as maintaining a minimum deposit in your account. There may also be penalties for withdrawing money early – such as a break fee, or reduced interest on early withdrawals.
Understand what fees you’ll be paying before you sign up to any product. Because fees are paid out of your investment, differences in fees and charges can have a big impact over the long term. It’s always a good idea to shop around for the lowest fees.
Managed fund providers
If you’re investing in cash through a managed fund, it’s worth checking how the provider is investing your money. If the fund is investing in one type of bank deposit account (or a high proportion of assets in that account), you have more risk of losing your money than if it’s spread across different bank deposit accounts.
How to reduce risk
Putting your money with banks is considered one of the safest forms of investment in New Zealand, but there’s no guarantee the banks won’t fail. A good rule is to spread your money across different cash investments.
Holding other types of investments such as bonds, property or shares can help reduce the risk of your money’s value being eroded by inflation. If you’re saving for retirement, contributing regularly to KiwiSaver is an easy way to spread your investments.