Mary Holm: Bank bashing proves too hasty

Money seems to have done a disappearing act but that's not the case. Photo / Herald on Sunday

I have had a considerable sum of money on term deposit in Westpac. The term ended on a Saturday but none of the money reached my bank account until Tuesday. All my money, principal and interest, "disappeared" for three days.

Where was all my money for these three days? Who had control of it?

Every day millions of dollars must similarly be "in limbo", that is, out of payers' but not yet into payees' accounts. Who benefits from such monies?

With the internet, why don't transfers from one bank account to another happen instantaneously?

In the same vein, if I pay a bill online after 10pm on a Friday, the money disappears immediately from my account but does not appear in the payee's account until Tuesday.

First, a note to other readers: At the end of this reply, I include information about the other major banks. So keep reading, regardless of who your bank is!

Banks often take a bashing. But this time - despite the apparent disappearing act - it seems that your bank is actually treating you better than it appears to be.

Looking first at your term deposit, a Westpac spokesman says deposits are always processed on a business day. "As the term deposit matured on the weekend the funds would have been processed on Monday night and available in the reader's account at midnight on Monday."

But - and this is the important bit - you would have received interest for the Sunday and Monday. He adds that a change in the bank's system "now ensures that if the maturity date for a term deposit falls on a weekend the system defaults the maturity date to the previous business day or, if the customer prefers, the next business day."

So, with a deposit that matures on a Saturday, you could now choose between a Friday maturity date, with one day less of interest, or a Monday maturity date, with two days extra interest.

The spokesman also points out that if you pay for a term deposit with a cheque, "interest starts from the time of the deposit, not when the cheque clears."

It's similar with electronic bill payments. "Electronic banking gives the impression of funds moving instantly although there are processes that occur in the background," says the spokesman.

"In some instances the funds are removed from the balance shown in electronic banking - but in reality are still in your account, potentially earning interest - until they are processed." This, he says, stops you from "spending the money twice", which could happen if you've already set up a bill payment but it's not yet deducted from your balance. That makes sense.

When I asked the other big banks what their practices were, ANZ made the following comment: "The key with the cut-off time each business day is that all the banks need to process many transactions, which happens right through the night so that the people receiving money can see it in their account the next day."

Here's a breakdown of how the other banks' practices differ from Westpac:

* ANZ: For a deposit due to mature on a Saturday or Sunday, the money is made available to the customer's ANZ account on the prior Friday night. If the customer has requested that the deposit roll over, it will roll over from the day that it is due to mature, including Saturday or Sunday. Customers can set the maturity date for any day they choose; for example, 185 days or March 11.

* ASB: The bank says it was the first in New Zealand to offer "real-time banking". If a term deposit matures on a weekend, the funds are paid immediately, and if they are paid into an ASB account they are available immediately - and this will show up in account balances. If they are paid into another bank's account, they will be transferred to that bank on the next business day. It's similar with internet bill payments. If the payment is to another ASB account, it is immediate. If it's to another bank, the money is moved on the next business day. When money is moved from another bank to ASB, the funds start earning interest immediately on receipt.

* BNZ: Its practices are the same as Westpac's.

* Kiwibank: Its system knows if you try to open a term deposit that matures on a non-working day and increases the term so that you are paid interest until the new maturity date. If the customer is talking to the bank at the time - in other words, it's not a paper application - Kiwibank lets them know, for example, that their 180-day term would mature on a Saturday, so the system would automatically turn that into a 182-day term deposit. It would give them the option to change to 179 days - at the same rate - if they required the funds on the Friday.

* National Bank: The system always defaults to the following business day for deposits that should mature on a weekend. Customers can choose to bring this back to an earlier business day if they prefer. They can set the maturity date for any valid business day. Interest is earned for every day that the bank holds the deposit.

Flexibility on mortgage:

I didn't really agree with your response last week to the question about whether it's better to make extra payments off a mortgage principal or reduce the term of the mortgage.

I recently found myself in a similar situation and decided to increase my payments and not reduce the term of my loan as the bank tried to do.

The difference is that if the bank draws up a new loan agreement for a shorter term you have lost your flexibility, as under the new agreement you will be required to make the higher payments. However, if you leave the loan over the longer period and you find yourself short of cash you can cut your payments back to the original amount.

Good point. I was comparing the impacts of the two options on the amount of interest you pay and how long the mortgage runs. As I explained, the impacts are the same. However, you are looking at flexibility, and that's really important in some circumstances.

I suspect that if you did draw up a shorter-term loan agreement and later couldn't make the higher payments, the lender would probably let you revert to your earlier plan. But it wouldn't be as easy as just reducing payments.

All of this assumes, of course, that your lender will accept extra payments of varying amounts - which is probably usually true for variable rate mortgages. It's not as easy to do this without penalty on a fixed rate loan - especially if you want to make large extra payments - but it's always worth asking.

Are gold, silver taxable?

Would the Inland Revenue be interested in anyone buying gold and silver? The reason why these metals are bought must be to make a profit on sale, as they do not produce income. As they are purchased solely for the purpose of a gain on sale then surely that gain is taxable.

The key to deciding whether the gain on the sale of anything - including precious metals - is taxable is the person's main purpose when they bought the item. If that purpose is to sell at a gain, then the gain is taxed.

If you buy shares, you might be able to argue that your main purpose is to receive dividends. If you buy rental property, you might say it's to receive rent. But, as you point out, gold and silver don't produce any income, so bang goes that argument for them.

And, as an Inland Revenue spokesperson points out, the same could be said for trading in overseas currencies.

However, someone might claim that they bought gold or silver coins because they were things of beauty, and they didn't plan to sell them. And that certainly could be said about purchases of gold or silver jewellery or ornaments.

That doesn't necessarily mean, of course, that Inland Revenue would "buy" the argument, particularly on the coins. It would take other issues into account, including whether there was a history of trading.

Gift of gold coins:

I read your column every week and the gold discussions intrigue me. My two siblings and I recently were given five gold coins (NZ Mint issued) with, I believe, a value of $8000 to $9000.

We pay approximately $100 a year to store them with the mint as, for insurance reasons, it isn't prudent to store them at home. We all like the thought of having some type of investment, other than just our money in the bank and property, and I guess we see it increasing in value.

I have seen a lot of discussion re the actual value of gold. Being a bit new to all of this, I wonder what the best long-term plan is for it?

None of us needs the money it would generate if it was sold. In fact, we wouldn't even know how to go about selling it - or in fact even want to sell it. More, we see it as a back-up for an emergency.

Given that it didn't cost us anything to buy, are we smart to just hold on and see what happens?

Not necessarily. The fact that you didn't buy the coins has nothing to do with whether it's wise to keep them - unless you think the person who gave them to you would be hurt if you sold them.

If that's not an issue, look at it this way: If someone gave you $8500 in cash, would you buy gold coins with it? Perhaps you would. After all, as you say, it diversifies your savings beyond bank deposits and property. And the value may rise considerably. Then again, it may fall considerably. Gold has done both in recent decades.

In other words, your investments are pretty risky. You could also diversify your savings, at somewhat less risk, by selling the coins and putting the money into, say, bonds or a share fund. I'm sure NZ Mint would help you to sell.

Then again, we're not talking large amounts here. Assuming you have other money for emergencies, you could just keep the coins. If their value grows lots, you could eventually sell them to fund travel or luxuries. And if it falls, it's "easy come, easy go".

By the way, while I was asking Inland Revenue about the letter above, I also asked about your situation. The spokesperson's response: "The person who was gifted gold coins and subsequently sells them will probably not be liable to income tax. Receipts from selling gifts would generally not come within the meaning of 'income' for the purposes of the Income Tax Act."

* Mary Holm is a freelance journalist, part-time university lecturer, consumer representative on the board of the Banking Ombudsman Scheme, seminar presenter and bestselling author on personal finance. Her website is www.maryholm.com. Her 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 (pref day) phone number. Mary cannot answer all questions, correspond directly with readers, or give financial advice.

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