Everyday account vs savings
| Everyday account | Savings account | |
|---|---|---|
| What it’s for | Bills, your EFTPOS card, your pay | Money you’re not spending yet |
| Interest | Little or none | Some: compare the rate and conditions |
| Getting at it | Any time | Easy, or locked in a term deposit |
Have your pay go into your everyday account, then set up an automatic payment to savings on payday. Saving first, before you spend, is the easiest way to make saving happen.
What to look for
- No monthly account fee. Many banks have none.
- A good savings rate, with conditions you’ll meet. Bonus saver accounts often drop to a very low base rate if you withdraw.
- Notice savers pay more if you give a set amount of notice before taking money out.
- Term deposits pay more for locking money away for a set time, such as six months or a year. Breaking one early usually needs notice, often 31 days, and costs some interest.
- A PIE savings account or term deposit can lower the tax on your interest if you’re on a 30% tax rate or more.
Tax on interest
Your bank takes resident withholding tax (RWT) from the interest before paying it to you. You choose the rate, and it should match your total income for the year: 10.5% up to $15,600, 17.5% up to $53,500, 30% up to $78,100, 33% up to $180,000 and 39% above that.
If your bank doesn’t have your IRD number, it must take 45%. If your rate is too low, you’ll owe the difference after the tax year ends. Check it whenever your income changes.
- RWT at 10.5% (income up to $15,600) 3.58% after tax
- You keep $358
- RWT at 17.5% ($15,601 to $53,500) 3.3% after tax
- You keep $330
- RWT at 30% ($53,501 to $78,100) 2.8% after tax
- You keep $280
- RWT at 33% ($78,101 to $180,000) 2.68% after tax
- You keep $268
- RWT at 39% (over $180,000) 2.44% after tax
- You keep $244
- PIE fund at 28% (top PIR) 2.88% after tax
- You keep $288
Your bank takes RWT at the rate you choose; without your IRD number it takes 45%. A PIE fund or PIE term deposit taxes the interest at your prescribed investor rate, at most 28%.
Is my money safe?
The Depositor Compensation Scheme protects up to $100,000 per depositor, per licensed deposit taker if it fails. That includes banks, building societies, credit unions and some finance companies licensed by the Reserve Bank. Joint accounts are split between the holders.
Investments, KiwiSaver and crypto aren’t covered by the scheme. If you have more than $100,000 in savings, you can spread it across more than one bank.
Fees to avoid
- Dishonour fees when a payment bounces because there isn’t enough money in your account.
- Unarranged overdraft fees and interest.
Keep a small buffer, turn on low-balance alerts, and check your statement each month.
What next
Work out where your money goes with a budget, then start an emergency fund in your savings account. To see what your savings will earn after tax, try the savings interest calculator.