I have just had to activate the powers of an enduring power of attorney in relation to property for my mother, who has suffered a severe stroke and is now in private hospital care, which costs about $1800 a week.
Mum has a $30,000 one-year term deposit with the ANZ earning 3.4 per cent a year. It rolled over for reinvestment in early March 2018. Interest per quarter is $212 net of tax.
The chap at the ANZ said we could break it and the normal payment term is 31 days for the deposit to be repaid. But if it was for personal hardship — that is, hospital fees — a quicker payment of a few days could be requested.
But the fee charged to break the deposit will be 3 per cent of the investment — $900. More than the net interest received for the year.
There is no negotiation of the fee, regardless of being a customer for many years or that the investment was automatically renewed and actually required minimal administration.
My mum's logic in having a short-term bank deposit was she could always get her money quickly for unexpected costs such as a private hospital. I certainly don't think she was ever told about the cost to break the investment.
This story has a happy ending. But first, let's look at the bank's normal policy.
"We advise customers that term deposits are a fixed-term investment," said an ANZ spokesman.
"If they want to access their investment before the end of the fixed term, then a reduced interest rate will apply. As a result we have a low rate of customers seeking to break their term deposits."
He added that the bank doesn't charge a break fee, but reduces the interest rate by 3 per cent on the amount withdrawn early.
The customer "will still receive interest for the term it has run — albeit at a reduced interest rate. There are a couple of exceptions to this. First, if the original interest rate was 3 per cent or lower, then the interest rate will be reduced to 0 per cent, that is no interest paid.
"Second, if the customer had chosen to have interest paid regularly during the term rather than being paid at the end of the term, then we may adjust the amount invested."
Why penalise early withdrawals, I asked?
"Term deposits are for a set term, and we rely on having the use of those funds over that set term for business purposes, like funding loans," said the spokesman.
He added that ANZ does not give a break to long-term customers. "We treat all of our customers the same."
In response to your comment that your mother may not have been told about the policy, he said, "Our early withdrawal policy is detailed in ANZ General Terms & Conditions, on the anz.co.nz website and in all term deposit confirmation letters sent to customers. ANZ staff may also mention this clause when discussing term deposits with customers." He added the policy is also "detailed in all term deposit renewal letters sent to customers".
Okay, I thought, but it might be buried in the small print. However, if the bank's "Introducing Term Deposits" brochure on its website is anything to go by, that's not the case.
In the brochure's second paragraph, it says: "Before investing in a term deposit please consider when you need your money, and whether you have money set aside in case of emergency. You shouldn't expect access to your money before the maturity date." It later spells out the early withdrawal policy clearly.
Nevertheless, the spokesman acknowledged your problems. "I'm very sorry to hear about the customer's situation. If your correspondent could give me their details and a phone number, I'll arrange for somebody to give them a call and sort something out."
With your permission, I passed on this information to him.
A few days later I received another email from you: "I had a call last Tuesday from a chap at the ANZ customer team, and he said I was told the wrong fee amount about breaking the deposit — though he didn't tell the correct amount. But he was keen to repay the deposit straight away with no fees deducted. This was repaid overnight."
That's good to know. It seems to me that ANZ's policy about hardship withdrawals is reasonable. It just needs to remind its staff about it.
Planning for retirement
Would it be better to reinvest the money in a laddering system — by splitting it into quarters and putting each quarter into bank term deposits for an initial six months, 12 months, 18 months and 24 months, followed by then reinvesting each for 24 months?
My wife has $46,000 in her KiwiSaver account.
She will retire next year when she turns 65.
We have a mortgage-free home and only small additional savings, which we intend to spend on future-proofing our home for retirement. Any advice you can give us would be appreciated.
As I've said many times, I recommend putting money you expect to spend in the next two or three years in a cash fund or bank term deposits.
And laddering the deposits, as you describe, is a good way to get the usually higher interest that comes with a longer term, while also giving you access to some money reasonably often.
I hate to say it, but if the mother of our previous correspondent had done that — setting it up so a portion of her savings matured every three months — it would have helped in her situation.
Still, I don't think you — or your wife — should do that with all your KiwiSaver money.
As a rough rule of thumb, if someone retires at 65 with $100,000, they can spend $100 a week and their savings should comfortably last as long as they do.
You two will have, say, $155,000 in savings, and you'll be retiring a bit older. So you should be able to spend about $170 a week, plus NZ Super.
If you decide to do that, you'll spend about $26,520 over the first three years of your retirement.
So you could set up laddered term deposits so $4420 matures every six months.
What about the money you expect to spend in three to 10 years — about $62,000 if we use our formula? That's probably better left in a KiwiSaver balanced fund.
Despite your recent experience, it should, on average, give you higher returns than term deposits.
But are you in the right balanced fund? Use the KiwiSaver Fund Finder on sorted.org.nz to find the best fund for you.
Go for one of the funds with the lowest fees rather than one with high returns, because good returns often don't stay good.
Finally, there's your 10-year-plus money.
It will almost certainly grow more if you put it in a KiwiSaver growth fund.
Again, use the Fund Finder to find the best low-fee one for you.
You'll need to be with the same provider for both your balanced and growth funds if you stay within KiwiSaver. But if you like the look of a different provider's growth fund, ask them if they have a similar non-KiwiSaver fund. Most do.
The downside of growth funds is their volatility. Occasionally your balance will plummet.
It will recover — it always does — but it might take a few years. It would be great if you could cope with that. But if you might panic and switch to a lower-risk fund when the markets have fallen — at the very worst time — you're better to settle for somewhat lower returns and stick with your balanced fund for your longer-term money too.
Every year or so, move some money from your balanced fund to term deposits and, if you're in a growth fund, from there to the balanced fund, to keep the time horizons correct.
However, as I no longer receive any employer contributions or tax credits, I have become quite disheartened when I note all the deductions made by the provider (conservative fund, by the way).
Having read a recent letter to your column regarding "laddering", would that be a more sensible way to manage my money?
You're like the previous reader, but you're in a conservative KiwiSaver fund. That suggests you wouldn't like volatile investments, even though they would almost certainly grow more.
So you have a couple of options:
• Move all your savings to laddered term deposits.
• Check out low-fee providers of conservative funds in the KiwiSaver Fund Finder and move to one of those.
Conservative funds are not the lowest-risk KiwiSaver funds. Defensive funds are. So a low-fee conservative fund will probably bring in a bit more, on average, than term deposits.
Sad but true, this is definitely affecting my retirement fund, but I think I have negotiated a salary that will compensate for this, and I won't cut off my nose to spite my
face and stop contributions as a protest.
I am still contributing to my retirement, regardless of my employer's cost-savings strategy.
Do the bill's changes include the removal of total remuneration so those few wayward employers like mine fall into step with the rest of New Zealand?
Unfortunately the bill doesn't include total remuneration as it applies to KiwiSaver — which means employer contributions are effectively taken out of employees' pay, in addition to employee contributions.
But there's hope. The bill includes several recommended changes made by the Commission for Financial Capability in a 2016 report. And while the report didn't directly call for an end to KiwiSaver total remuneration, it said the practice is a disincentive to be in KiwiSaver.
"The intent of KiwiSaver legislation is that compulsory employer contributions are paid on top of gross salary or wages," said the report.
It recommended "more detailed investigation" of total remuneration.
And that might happen. "Further work is required by Inland Revenue, the Ministry for Business, Innovation and Employment and others on the remaining recommendations of the 2016 review," says Minister of Revenue Stuart Nash.
"Any review of total remuneration policies would be led by MBIE labour market officials."
Meanwhile, do keep contributing to KiwiSaver. At least you get the tax credits.
And, as you say, your pay might well be a bit higher because your employer doesn't have to pay into your KiwiSaver account.
- 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 email@example.com or Money Column, Private Bag 92198 Victoria St West, Auckland 1142. 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.