Bank deposits losing ground to inflation as Kiwis seek financial guidance

Susan Edmunds fields questions about money every week on RNZ's 'No Stupid Questions' podcast, and lately the inbox has filled with a particular anxiety: the slow, invisible erosion of savings. A listener asked when bank term deposits last paid returns above inflation. The question cuts to something real. With inflation sitting at 4.1 percent and six-month term deposits offering around 3.55 percent, the math is unforgiving. On-call savings accounts pay even less—between 0.5 and 2 percent. Before you even factor in Resident Withholding Tax, money left in the bank is losing ground.

Shamubeel Eaqub, chief economist at Simplicity, compiled a chart using Reserve Bank data on average six-month term deposit rates. The picture it tells is sobering. Right now, the return above inflation is marginal at best. During the Covid years, people holding money in six-month term deposits were, on average, going backwards—though not as dramatically as during the high-inflation 1970s. The cost of safety, it turns out, is real. Yet the listener's underlying point stands: you need some money readily accessible for unexpected costs. The tension between security and erosion is not easily resolved.

Another question came from someone invested in a Milford moderate-conservative KiwiSaver fund. Since February, their balance had fallen from $299,000 to $297,600, despite adding $1,000 over that period. Was a negative return over seven months normal? Murray Harris, KiwiSaver head at Milford, confirmed the six-month return for the conservative fund to August 31 was a drop of 0.45 percent. He noted that even conservative funds can decline over short periods, particularly when local and global interest rates are rising. But he also offered perspective: the one-year return was 1.12 percent after fees, and over the recommended three-year minimum timeframe, the fund had returned 5.89 percent per annum. Over its full history, 6.45 percent per annum. Harris offered to connect the investor with someone to assess whether the fund remained the right fit.

A third question addressed the relationship between family trusts and wills. Michelle Pope, principal trustee at Public Trust, explained that they serve different purposes and most people with a trust still need a will. A family trust deals with assets owned by the trust itself. A will deals with assets you personally own and any debts you carry when you die. Bank accounts, vehicles, personal belongings, KiwiSaver, property never transferred to the trust—all of these remain in your personal name and flow through your will. A will also lets you choose a guardian for your children and appoints an executor with legal authority to administer your estate. A memorandum of wishes, by contrast, provides guidance but carries no legal force. Pope flagged a common oversight: assets are not always fully transferred to a trust just because the trust exists. A person might transfer their home to a family trust, yet the trust could still owe them the value of that home. That debt remains part of the estate until forgiven, often through a deed or the will itself.

Another listener asked whether wills and enduring powers of attorney prepared online are legally valid in New Zealand. The answer is yes, provided they meet all legal requirements and no problems exist—such as lack of capacity or duress. Pope noted that 77 percent of the wills Public Trust helped with last year were prepared online, as were 70 percent of the EPAs. For people with straightforward circumstances, online services offer convenience and cost savings. The proliferation of online providers has made wills more accessible than ever. But not all providers handle complex situations. Blended families, business ownership, separation agreements, overseas assets, beneficiaries with support needs, or concerns about estate claims all warrant upfront professional advice to avoid problems later. The critical risk, Pope emphasized, is failing to properly execute the document. A will must be correctly signed and witnessed to be legally valid. An EPA requires specific legal requirements around capacity and witnessing—the person making it must understand what they are signing, have the capacity to make those decisions, and sign before an authorized witness satisfied they understand the effect and are signing voluntarily. Whether a document is created online or in a lawyer's office matters less than whether it accurately reflects your wishes and has been completed and signed correctly.

A final question came from someone buying items for a not-for-profit organization from a cheap Chinese products website. The site offered to void tax if the buyer provided their tax details. The person, a pensioner paying tax on their pension but nothing else, could not get the system to accept their IRD number. The explanation is straightforward: the supplier is likely registered for New Zealand GST and trying to determine whether GST should be charged. GST does not apply to sales to GST-registered businesses, because they simply claim it back. The not-for-profit is almost certainly GST-registered and able to claim back GST on the goods. It is the not-for-profit's name and GST number that should be used when purchasing, not the individual's.