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Supercharge your savings

It’s good to put money aside for when you might need it later down the track. But to really supercharge your savings, it pays to have your money working as hard as it can for you.

4 minute read

When you put money into savings, the bank holds your money, and pays you a certain amount of interest depending on the type of account it is. The easiest way to grow your money is to look for an option that allows you to earn the most interest after tax possible, while also matching your needs and lifestyle. Generally, the longer you’re prepared or are able to leave your money untouched, the higher the interest rate you could earn.

Here’s how to begin your savings journey, and what to consider when it comes to getting the most from your balance. 

Getting started

If you’re not yet saving, or you’re just starting out, it could be good idea to follow these handy tips:

• Consider setting up separate savings accounts for each of your goals, like a ‘holiday account’ or a ‘new car account’. It’s always good to have something to aim for when you’re saving.
• Work out how much you need to save each pay day to reach your goal in time. You can do this by dividing the amount you want to save by the number of weeks or fortnights left until your goal date.
• Don’t forget to make sure the amount you put aside fits in with your budget so you can still meet your day-to-day expenses.
• Set up an automatic payment from the account your salary or wages get paid into, to your savings account. Make sure this regular amount comes out on or close to pay day – chances are you won’t miss it. 

The saving stepladder     

There are a number of options when it comes to how to save. Some let you access your money easily but pay a lower rate of interest. With others, you’re in for the long haul, but aiming for a bigger balance at the end.   

Savings account

A basic savings account is the go-to option for most people, and probably what springs to mind when you think of saving through your bank. This account allows you to save as you go and access your money when you need to. It’s also easy to open, and you can usually open one yourself through internet banking. It pays interest on your balance, but at a comparatively low rate. This means it’s good for smaller balances. 

Some banks will offer different types of savings accounts, such as a lower interest rate one, and another with a slightly higher rate. These can have different fees, and you might get charged for withdrawals, or be limited to one free withdrawal a month to encourage you to keep your money tucked away. It’s important to know savings accounts aren’t designed for day-to-day spending though, so you’ll need to have a transaction account too. That way you’ll likely avoid being charged every time you make a payment.

Term deposit

If you don’t need to access your money in the short term, you might want to consider putting your money into a term deposit account. When you open a term deposit, you choose to lock a set amount of money away for a fixed length of time – as little as seven days, or up to five years – with a set interest rate. Locking it away means you have very limited access to the money, but you could earn interest at a higher rate than a savings account, giving more supercharge to your savings.

To get started, you need a minimum amount to invest (this varies depending on your term deposit provider). Once you’ve chosen how much to put in, this is set in stone, and you can’t top it up with any extra money along the way. But if you end up with more money to save and invest, you can always open another term deposit.
  
You can choose to have your interest paid out monthly, or if you want to earn interest on your interest, you can ‘compound’. Compounding means interest is added to your balance each month, making your investment grow over time. Each month, your interest will be calculated on your increased balance, rather than your original investment, and this will be paid out when your term deposit ends.

At the end of your term deposit period, you’ll be able to access your money, as well as any interest you’re owed. However, if you need to ‘break’ it early (withdraw some or all of your money), you’ll usually need to give the bank around a month’s notice. Plus, you’ll generally pay a fee when you break a term deposit which will reduce the overall amount you receive.

Managed fund

If you’re happy to accept a level of risk in order to grow your savings balance and you’re unlikely to need access to your funds for at least three years, you might want to consider investing your money in a managed fund. Although it might seem scary or a bit overwhelming to think about investing rather than saving, it could be a good option for growing your balance.
 
Managed funds are looked after by investment experts who pool investors’ money and put it into things like shares and bonds – and this means they work differently to savings accounts. An important difference is managed funds earn investment returns, rather than a fixed rate of interest. The returns you get are based on how much the shares, bonds and other ‘assets’ your money is invested in are worth at any one time. This can change from day to day, going up or down depending on whether the fund’s value is up or down. It’s important to be aware the swings back and forth are just a normal part of investing – make sure you’re comfortable with this if you decide to go ahead.

There are different types of managed funds, depending on the level of risk you’re willing to take, how much volatility you’re comfortable with, and how long before you’ll need your money. The one you choose will influence the potential returns you could get. Higher risk funds are expected to earn you more over the long term than lower risk funds, but they tend to have more ‘volatility’, meaning your balance is expected to have bigger movements up and down along the way.
 
Whatever you choose when it comes to your savings, make sure it’s the right option for you. 

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This article is for information purposes only and is not intended to be financial advice. We haven’t considered individual circumstances, so your actual financial needs and planning may vary. If you need help, please contact BNZ or your financial adviser. Neither BNZ nor any person involved in the material accepts any liability for any direct or indirect loss or damage arising out of the use of, or reliance on, all or any part of the content.