Mary Holm answers readers personal finance queries.
Letter from a banker:

There is a perception - mentioned in your column recently - that banks withhold making payments in order to make money on the side, which is not correct.

People receiving benefit payments on a Monday night (a huge number of benefits are paid that night) swamp social media if there is a delay in receiving their payments, and are certain the banks are holding the funds for an hour to make some extra cash. All quite strange, but there is suspicion about banks, corporations and governments.

Benefit payments used to go through overnight, but now most banks process the payments as soon as the payment files are received. So benefit payments that used to go into accounts between midnight and 2am now usually appear in our bank accounts between 7.30pm and 8.30pm the day before, but later if we don't get the file at the normal time. Not all banks process immediately, but most do.

The sad thing is realising just how hand-to-mouth some people's lives are. You can read on social media how people are at their supermarket with their trolley full of food waiting for the payment to appear. In some small towns there are groups of people at ATMs waiting for the payments to arrive. Bank call centres are overwhelmed with people ringing simply to ask if their benefit payments are in.

The other issue that I found rather sad is what happens at Christmas, New Year and Easter, particularly when Christmas Day or New Year's Day falls on a Monday. Winz makes the payment scheduled for the Monday or Tuesday on the previous Friday night, or Thursday for Easter. That can mean a very long wait until the next payment, in some cases 10 or 11 days.

This is where the short-term lenders come into play, charging massive interest rates. But you can see how desperation sets in when someone has spent their benefit, and has four days to wait and children to feed.

It is a side of life not everyone understands.

Agreed. And it's particularly worrying to read about the short-term lenders, who profit from our most vulnerable people.

In a recent nationwide survey by Consumer NZ, 7 per cent of New Zealanders said they find it very difficult on their present income, and another 17 per cent find it difficult. That's nearly a quarter of the population struggling.

It does put into perspective some of the complaints aired in this column. I'm not belittling those complaints. We all have a basic level of contentment and don't like it when that's upset. But, to paraphrase folk singer Ralph McTell:

"How can you say you're hard done by,

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"And say for you that the sun don't shine?

"Let me take you by the hand and lead you through the streets of Auckland.

"I'll show you something to make you change your mind."


Bank interest

I empathise with the person in a recent column who lost three days' interest on a deposit of $400,000. You could give banks the benefit of the doubt here, since the transfer was made on a public holiday. But what happens when transfers occur between two accounts within the same bank on a weekend or long weekend?

I have a few term deposits with the same bank. Normally on the first day of the month, interest earned on different term deposits goes to my saver account (earning 2.35 per cent) and so does the principal of a term deposit at its maturity date.

If I have sufficient funds in the saver account, I start another term deposit normally on the 1st of the month, as the bank only gives 0.1 per cent interest if there is even a single withdrawal during the month from the saver account.

During the course of many years with the bank, I think I may have lost interest on many occasions as the day of interest has either fallen on a weekend or a long weekend. The interest is offered on the next working day in these cases.

During 2017, the first of the month will appear on a Saturday in April and July (loss of interest 2 x 2 days = 4 days) and on a Sunday in January (long weekend) and October. In total there will be 8 days of loss of interest on interest.

At the end of the day, it does not amount to big dollars, but as you well said, "every penny counts". It is a loss for the account holder as well as the IRD (Government). Who wins at the end of the day is the bank.

I have not named the bank here, simply because I have been with it for many years and it has always been good to deal with.

With respect, perhaps you're getting overly annoyed by this issue. I'm sure the details on payment dates over weekends and holidays are part of your contract with your bank, and nobody forced you to sign up for it.

If you're really bothered, you could shop around to see what other banks offer each time a term deposit matures. You might lose a couple of days more of interest because of transferring between banks, but you're sure to make up for that in higher rates. No single bank always offers the best rates.


Buying in Auckland

My wife and I are in our late 20s and selling a property outside Auckland. We are looking to buy in Auckland after that goes through.

We have our first baby on the way so we want a comfortable long-term home and plan to spend somewhere in the $800,000s. We are keeping an eye out for a property that includes a granny flat, which would be nice for a little extra income from rent.

We are considering setting aside enough cash for a 20-30 per cent deposit and then starting an investment of $100,000 in shares of some description.

We have been reading a lot about investing in "high quality" shares that offer dividend payments, which we could use to buy more shares to grow our initial investment and in the future produce extra income. We would probably split the $100,000 and put some in index funds before looking at selectively buying shares.

First, would you consider it wise to invest $100,000 and not maximise our home deposit?

Second, what are your thoughts regarding selectively investing on the NZX in large, successful companies that pay dividends to shareholders?

It's useful to compare you with a correspondent a couple of weeks ago. In reply to her, I said it was usually better to pay down a mortgage than invest elsewhere. And - for someone in her situation - the same would apply to keeping the mortgage smaller in the first place by paying a larger deposit.

The return on reducing the mortgage is equivalent to having an investment that earns - after tax and fees - the same as the mortgage interest rate. To put this in before-tax terms, paying off a 5.5 per cent mortgage is equivalent to holding an investment earning 6.7 per cent after fees but before tax if you are on a low income. If you're on a high income - and taxed more heavily - it's equivalent to earning 8.2 per cent after fees but before tax.

To earn those sorts of returns, basically you have to invest in shares or property and be lucky. On the other hand, mortgage repayment - or keeping the mortgage smaller - is risk-free. And it puts you in a much stronger position if bad stuff happens.

The only clear exception is KiwiSaver, which you haven't mentioned. Whatever else you do, I suggest each of you invests enough in a KiwiSaver higher-risk fund to get the maximum contributions from the government and your employer.

However, there are big differences between you two and the recent correspondent. She's about to turn 60, and her financial position isn't nearly as strong. For you, other arguments kick in - namely, that investing in shares would give you diversification away from just property. And you have time to stay in the market through ups and down, and to learn how it works over the years. It might, therefore, be a good idea for you to invest something beyond KiwiSaver contributions in shares or a share fund. But I suggest you consider three questions before you go ahead:

• You say you're keeping an eye out for a property with a granny flat. But have you really looked closely at the Auckland market?

I doubt that you'll find such a property, in reasonable condition and in a reasonable suburb, in the $800,000s. I suggest you research the market carefully. And if you find the sort of place you would like, work out how big your mortgage would be and use an online mortgage calculator to work out your monthly payments.

You might find you'll need to put all the proceeds from the sale of your current house into buying your new one.

• If you're still up for a share investment, how big should it be? Investing $100,000 feels a bit much to me, given you'll have a large mortgage - unless you have a high appetite for risk. Picture the value of your shares halving in a crash. Would you stick with them, knowing they will recover but it could take several years?

If you're not sure, it would probably be better to put most or all your savings into a house deposit, concentrate on paying off the mortgage as fast as possible, and then get into shares. Owning a mortgage-free house is a great starting point.

• If you're confident you can cope with sharemarket volatility, what's the most suitable way for you to get into the market?

I'm not wildly keen on your idea of picking large, successful New Zealand companies that pay dividends. Clearly, they will be popular with other investors too, which means their prices will be higher than less appealing shares, so you might not make such big gains on their prices over the years. Don't forget, too, that today's healthy-looking, high-dividend company can be tomorrow's low-dividend struggler. It happens.

Picking stocks doesn't usually work as well as simply investing in a broad-based low-fee index fund. Sure, you have to pay fees in a fund, but you get broad diversification. And many funds offer automatic dividend reinvestment.

Still, you might be lucky with your stock picks. Given your ages and financial situation, you could give it a go if you think you would enjoy it. But only if you put in around $100,000, so you can get reasonable holdings in at least 10 or 12 shares.

In a portfolio of just a few shares, if one or two "go bad" that will have too much effect on the total value. Generally, in investing, if you take more risk you're likely to receive higher average returns. But the risk you take by being under-diversified is not rewarded with higher returns.

Mary Holm is a freelance journalist, a director of the Financial Markets Authority and Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. Her website is www.maryholm.com. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.