It doesn't seem much but small change can mount up quickly

If you have a spare $50 in your pay cheque at the end of the week and think it's not enough to bother saving, think again.

You could knock years off your mortgage or use the power of compound interest to turn it into hundreds of thousands of dollars in a long-term investment such as KiwiSaver.

The Herald on Sunday looked at what $50 a week could have been used for over the past three years.

Based on Morningstar performance report of average returns, KiwiSaver members could have earned an annualised 5.5 per cent in default funds and 8.8 per cent in growth funds over the past three years.


As a result, $50 would have become $8,234 and $8,510 respectively. Some funds returned much higher amounts. Interest was in the double digits in some cases.

If those rates of return continued over the lifetime of the KiwiSaver account, the extra $50 a week would turn into more than an extra $150,000 at retirement in a default fund and more than $350,000 in a growth option.

Sharemarket returns have been very good over the past three years, so $50 a week in an index-traded fund such as smartTENZ, which holds shares in the 10 largest New Zealand companies by capitalisation, would have become $9,087.

It reported returns of 15.3 per cent a year over the past three years.

If you're only five years into paying off your mortgage, topping up a $500,000 loan by an extra $50 a week for just three years would knock 11 months off its lifetime and save you $26,137 in interest over a 30-year term.

These numbers aren't exact because fees will vary and how often interest is paid makes a difference.

Financial adviser Jeff Matthews said sharemarket investments had been good value lately but could be volatile.

If people wanted the best possible return with the least risk, paying off a mortgage was the way to go.

The higher the mortgage interest rate, the more beneficial it was to put money there.

"Even at 6 per cent, a 33c-in-the-dollar taxpayer has already paid tax on their income," Matthews said.

"So when they're paying off the mortgage, they're effectively getting a 9 per cent return because you can add back in the tax that has already been paid. "It's a relatively low-risk, safe investment."

Financial Services Council chief executive Peter Neilson said people should top up their KiwiSaver accounts if they were contributing less than the $1,042 required to get the full tax credit.

Beyond that, it was hard to beat paying down a mortgage but he said people needed to realise property was not without risk.

If prices fell, diversification would be valuable. "Even if you're saving money on interest, if the underlying investment is dropping in value, it doesn't make a great deal of sense," Nielson said.