Money in transaction accounts costing Kiwis billions
New Zealanders may be leaving money on the table by keeping their cash in transaction accounts.
David Cunningham, chief executive of mortgage broking firm Squirrel, said there was significantly more money in transaction accounts now than before Covid.
Most banks do not pay interest on transaction accounts.
Cunningham said transaction account balances had peaked at $53 billion when interest rates were close to zero, and people could see little reason to change.
It had fallen to a recent low of $37b but had now lifted again to $39b.
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"Almost all of this earns 0% [interest]."
If that money were shifted into an account paying 3%, it would give savers just under $1.2 billion in interest a year.
Cunningham said before Covid hit, there was about $28 billion in transaction accounts.
"You're always going to need some float in your transaction accounts, but a lot of this is lazy money."
(Source: istock.com)
He said it was customer inertia that also delivered higher profits to the banks, because they could make money from the cash sitting in the accounts.
But he said banks should be encouraging customers to check that they had their money in the right accounts.
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"Every time you log in, they could remind you that you've got say $20,000 in a transaction account earning nothing, and if you moved it to savings you could earn x… that would be a way to make sure people were better off," Cunningham said.
Claire Matthews, a banking expert from Massey University, said some people kept their money in transaction accounts because of the ease of access.
"They may have concerns about fees to access it if it's in a savings account. Partly, I think it's because they don't think the interest will be worth it - but they may not have actually looked at the numbers, because depending on the amount, it may be very worthwhile over time. Partly, however, it is probably just not getting around to doing it."
Banks have been cutting rates for term deposits and some savings this week, after the official cash rate reduction.
Westpac said on Thursday it was cutting the rate offered on a number of term deposits by 10 basis points.
ASB said it was cutting the rate offered on its Savings On Call, ASB Cash Fund, Savings Plus and Headstart accounts by 20 basis points. That took the Headstart rate to 2.7%.
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