Are zombies eating your bank interest? Zombie accounts are the ones that pay low interest rates - sometimes as low as zero. Kiwis have millions of dollars tied up in these accounts and are often too apathetic to do anything about it.
We're lucky in New Zealand with accounts that have positive after-tax rates, says David Chaston, of Interest.co.nz. In many countries it's impossible to get rates that beat inflation. We can. Yet many customers, possibly even the majority, are too slack to go out and get those rates.
Checking my interest rates is something I do once a year or so. Last time I looked I found that the rate on ASB's FastSaver account had fallen from industry-leading levels to just 2.75 per cent. The bank had created a new account called Savings on Call, which was offering tiered interest up to 3.45 per cent. Anyone who had more than a small balance would be silly to stay in FastSaver. But probably few customers know that.
The customers who stay with the likes of FastSaver fall into what the banks call "replicating portfolio" says Chaston. "It's very fancy words for taking advantage of the lazy. It's a really unfortunate strategy."
How it works is that the bank gains our business with headline-grabbing rates. Then over time it drops the rates and then closes the account type to new customers. Your money sits there earning next to nothing because you don't shop around and switch accounts or banks.
It's not just savings accounts where zombie rates are common. As Chaston points out, few New Zealand banks offer interest on their transaction (also called current or cheque) accounts. People who have their entire pay deposited into these accounts are missing out on interest.
One of the few banks that pays any interest on current accounts is TSB, where the rate starts at 3 per cent and goes up to 4.15 per cent.
If you regularly have thousands of dollars in a current account - even if it's just in the first half of a pay period - it may be worth switching.
Or if you have a mortgage, consider putting a portion of that mortgage on revolving credit. That way you're earning the equivalent of the mortgage interest rate on your pay when it's deposited, providing the bank fees don't eat up your savings.
Some of the interest rates being paid for quite high sums of savings are unbelievable. The BNZ, for example, is paying 0.40 per cent on Call accounts with $5000 or more, 0.70 per cent for $20,000, and so on up to 2.20 per cent for $500,000. There must be customers with money in these accounts, or they'd be closed. Even if they don't want to change banks, why on earth don't they switch to the BNZ's PersonalOnCall account that is paying 2.80 per cent? That's $3000 a year additional interest for $500,000.
Most people don't have $500,000 on deposit at the bank. The difference between a low interest and higher return on a small sum such as $10,000 is about $1.50 a week after tax. It's not huge, but over the years it adds up.
Some of the worst zombie rates around are for so-called bonus saver accounts. The ANZ - and it's not alone - advertises an interest rate of 4.25 per cent. The reality is if you make a single withdrawal in the month, you get just 0.10 per cent. Westpac and TSB are the same except that the top rate is 4.20 per cent for Westpac and 4.30 per cent for TSB.
Many customers either don't realise what's expected of them or aren't disciplined enough to get the bonus every month. Those customers would be better off on a slightly lower interest rate that didn't change according to their behaviour.
In Britain there is an official probe by the Financial Conduct Authority into bonus saver accounts and the practice of luring customers with good rates and then slashing them by as much as 96 per cent overnight.
Rob Collins, general manager of credit union NZCU, says the main reason people end up in low-interest accounts is that they simply don't get around to switching.
"It's what banks rely on. Attract new customers with special offers [such as] interest free on transferred credit card balances and the customer will stick with you regardless of what happens after the special offer finishes," says Collins.
One of the things that stops customers switching to higher interest savings accounts is that they often have to have minimum balances such as $2000 or more, says Bruce Thompson of Kiwibank.
"People on tight budgets sometimes find it challenging to maintain the minimum balance and tend to want to ensure they always have money available for essential living cost," he says.
Children's accounts also have paltry interest rates. That's in part because they're not very profitable for banks. Children make small deposits regularly, says Chaston. I know my own children make those deposits at the teller, which is costly for the bank.
Even so, there's a big difference between Westpac's 2 per cent interest rate and the 5 per cent offered by the Co-operative bank and 3.25 per cent from Heartland Bank.There could be some real teachable moments around the dinner table about that.
Any conversation with children about switching - aka "rate tarting" - needs to be tied in with the issue of risk. Children need to understand that higher returns are coupled with higher risk. Co-operative, Heartland, SBS Bank, and TSB, which often have better rates than the high street banks, have lower credit ratings. This means there is more of a risk.
Chaston points out that business and trust savings have traditionally been treated worse than personal accounts. Business accounts from high-street banks often offer less than 1 per cent. This is changing. If you have business savings then it's worth comparing rates. Competition's heating up.
If you're disinclined to switch banks, then at least phone yours and ask how you could earn more interest.
Just opening a savings account with another bank doesn't take the effort of a complete switch. The new bank will do most of the work. If you still can't face this then at least open savings accounts with more than one bank. Get a "significant other" bank, as RaboDirect says it in its adverts.
The easiest way to find information about interest rates and credit ratings is to go to comparison websites such as Interest.co.nz or Depositrates.co.nz. It can be a mission to find such information on banks' own websites.
If your bank, building society or credit union offers automated "sweep" facilities, use them. These facilities allow you to sweep money over a certain sum from low or no interest accounts into higher interest ones automatically when the balance is over a certain amount. The money sweeps back in if the transactional account falls below a certain level. That way you earn maximum interest and avoid honour or dishonour fees.
Sweep facilities are proven to help build bigger savings funds from money that you might otherwise spend just because it's there in an everyday account, says Collins.
All those with money languishing in savings accounts could be getting better returns. You could be earning up to 4.5 per cent in an on-call account. Term deposits are paying over 5 per cent for five years. Even high-street banks are paying effective rates of over 5 per cent in portfolio investment entity (Pie) funds over longer terms. Both ASB and BNZ offer 5.21 per cent over five years for 33 per cent tax payers.