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Almost everyone needs a bank account and savings account, either to pay for your everyday expenses, to keep an emergency fund, or for short-term savings goals (given other assets like shares are too volatile for the short-term). But with so many different banks and account types available out there it can be confusing to know which one to pick. In this article we break down the various products from 11 different banks, to help you make an informed decision on which options to choose.

This article covers:1. Transaction accounts2. Everyday Savings accounts3. Bonus Saver accounts4. Notice Saver accounts5. Term Deposits

The interest rates stated in this article are as at 20 April 2023 and are subject to change. We’ve provided them for illustrative purposes only – check the bank’s website for up-to-date rates.

The first thing people tend to ask when choosing a bank account is “which bank is the best?” However, there’s no definitive best bank, and opinions on each bank will vary depending on who you ask. Different people will have different experiences with each bank – some good and some bad. So we’d say they’re all pretty similar and are all acceptable places to deposit your money – It comes down to personal preference in a lot of cases.

Instead a better question to ask when choosing a bank account is “what type of account is best for me?” For example, do you need a transaction account, on-call savings account, or term deposit? But before we dig into the details of the different accounts, let’s take a quick look at the various banks. In this article we’ll split the banks into two categories – the “big 4 banks” and the “smaller banks”. Each category has a few key differences between them:

The big 4 banks are by far the largest banks in New Zealand and operate here as subsidiaries of major Australian banks.

Owned by Australia and New Zealand Banking Group. Listed on the ASX and NZX as ANZ.

Owned by Commonwealth Bank of Australia. Listed on the ASX as CBA.

Owned by National Australia Bank. Listed on the ASX as NAB.

Owned by Westpac Banking Corporation. Listed on the ASX and NZX as WBC.

The big 4 banks tend to offer more services compared with smaller banks like Apple Pay and larger physical branch networks – something you may want to consider if you prefer to do your banking in-person. They also tend to have higher credit ratings which means they’re considered less likely to go bust. You can learn more about credit ratings here.

Some people prefer not to do business with these banks as they’re Australian owned, and have the perception that the profits made by these banks go overseas rather than being retained locally. Though keep in mind it’s possible for New Zealanders to own a slice of these banks as well (and get a portion of the profits) by buying shares in them. In fact you might already own a portion of these banks, either directly or through a fund.

We’ll also cover 6 smaller banks in this article:

Owned by the bank’s customers. That means if you open an account or take out a loan with them, you become a part owner of the bank. Co-operative Bank may pay a share of their profits out to you in the form of an annual rebate.

Part of Heartland Group Holdings, which is listed on the NZX and ASX as HGH.

Part of Kiwi Group Holdings, which is owned by the New Zealand Government.

Rabobank New Zealand operates as a subsidiary of Rabobank Nederland, based in The Netherlands.

Similar to Co-operative Bank, SBS is owned by the bank’s customers.

Owned by Toi Foundation, a community foundation based in New Plymouth.

These banks usually have fewer services and lower credit ratings, meaning they have a higher likelihood of going bust compared to the big 4 banks. In addition, (with the exception of Kiwibank) these smaller banks have relatively sparse branch networks. Though physical bank branches and in-person banking is becoming less and less relevant these days, and the big 4 banks have also been trimming down their branch networks over the years.

The advantage of smaller banks is that they often offer higher interest rates, and many prefer that these banks are New Zealand owned (with the exception of Rabobank).

Now let’s look at all the different account types on offer:

As the name suggests, transaction accounts are designed to pay for everyday bills and expenses. They allow you to make as many withdrawals and deposits as you like and can also be connected to debit cards which allow you to spend your money online. They also allow you to set up direct debits and automatic payments on the account.

We like to think of transaction accounts as distribution centres for your money, where you paid from your job, then distribute that income out to bills, shopping, savings, long-term investments and so on. The downside of these accounts is that they don’t tend to pay interest, and many of them charge account or transaction fees.

Here’s the transaction accounts offered by the big 4 banks:

With so many accounts to choose from (especially with ANZ and ASB each having 3 different transaction products), the options can be confusing. However, the options can be broken down into two broad categories:

Electronic accounts – These accounts have no fees for electronic transactions (those made through online banking or an ATM), and usually no account fees. But you may have to pay fees for manual transactions (i.e. transactions conducted in a branch or over the phone). Accounts in this category are:

Classic accounts – These accounts charge a monthly account fee (which are waived in some instances), however do not charge any transaction fees, regardless of whether it’s an electronic or manual transaction. Accounts in this category are:

Given the prevalence of internet banking and ATMs, electronic accounts should be fine for most people. But overall there isn’t a significant difference between all the options.

Here’s the transaction accounts offered by the smaller banks:

Here we can also break down the options into two broad categories:

Electronic – No fees for electronic transactions.

Pay-as-you-go – Fees apply for each electronic and manual transaction.

Rabobank doesn’t offer any transaction accounts.

Here’s some extra features you may want to consider when choosing a transaction account:

All banks will allow you to attach an EFTPOS and/or debit card to your account:

Westpac also offers an Airpoints Debit Card, which allows you to earn 1 Air New Zealand Airpoint for every $150 you spend through the card. However, the fee for this card is $5 higher than their normal debit card ($15 p.a vs $10 p.a.). That means you’ll have to spend at least $1,250 per year on the card to break even on the fee.

Heartland doesn’t offer debit cards on their accounts.

Overdrafts allow you to spend more than the amount of money you have in your transaction account. For example, if you only had $200 in your account, but wanted to spend $1,000, an overdraft would let you borrow the remaining $800. They’re not something you’d want to rely on regularly, with high interest rates ranging from 10% on Heartland’s YouChoose account to around 20% with most other banks.

Most banks offer special perks for kids, tertiary students, and recent graduates, which can include the waiving of any account and transaction fees, a free debit card, and interest-free/reduced rate overdrafts. ASB probably offers the most interesting perk on their tertiary accounts, giving you free fries when you buy something at McDonald’s on your ASB Debit card. They’re generally worth applying for if you fit into any of the above categories as you’ll likely save on costs.

On-call savings accounts give you unrestricted access to your money, allowing you to make as many deposits and withdrawals as you like, while paying interest. We like to think of these as temporary parking spots for your money – A place for money you don’t have to use immediately, but want to have readily accessible in the near future.

The downside of these accounts is that the amount of interest they pay tend to be very low. Secondly, the unrestricted access to your money may make it tempting for some people to dip in to their savings, so they might not be the best if you’re trying to save for a particular goal. Thirdly, some on-call savings accounts have to be tied to a transaction account – you’ll have to transfer your money to the linked transaction account before withdrawing/spending the money.

Interest rates for on-call savings accounts are variable, so can be increased or decreased at any time.

Each of the big 4 banks offers one on-call savings product, except for ASB who offer two. There’s not much difference between them apart from their interest rates.

Both ANZ and ASB also offer Portfolio Investment Entity (PIE) versions of their on-call savings accounts. These are taxed at your Prescribed Investor Rate (PIR) which is capped at 28%, meaning these PIE accounts can have tax advantages for those on the higher marginal income tax rates of 30%, 33%, or 39%.

Further Reading:– What taxes do you need to pay on your investments in New Zealand?

Overall, BNZ sticks out here by offering an on-call savings account paying more than double the interest versus any other big 4 bank.

All of our smaller banks offer at least one on-call savings product:

Co-operative’s Prize Draw Saver has a lower interest rate than their Online Saver account (0.50% vs 0.95%), but puts you in a monthly draw to win a Mini Cooper car. Every $100 of your average daily account balance gets you 1 entry into the draw.

TSB has a relatively confusing offering with three on-call savings products. The key differences between them are:

Heartland, and Kiwibank also offer PIE versions of their on-call savings accounts:

Overall, Rabobank and Heartland offer the highest interest rates, both beating out the big 4 banks. However, Kiwibank and TSB aren’t too far behind with their offerings.

Why do non-PIE accounts exist?Given the tax advantages of PIE accounts, many people wonder what’s the point of banks offering non-PIE accounts. That’s because there’s some cases where being taxed at your PIR can be less favourable. For example, PIE tax is generally a final tax, which means you can’t get a tax refund if you overpaid tax on your PIEs. Another example is for non-NZ tax residents who all have a PIR of 28%, so may find it more favourable to select a non-PIE account where they can use a lower withholding tax rate.

Some banks offer special savings accounts for under 18s, which sometimes pay a generous interest rate compared to normal adult accounts:

A couple of investment platforms also offer on-call savings accounts:

In Squirrel’s case the money is held with BNZ, while Sharesies hasn’t disclosed the bank they hold their funds with apart from saying it’s a major NZ registered bank with a credit rating of AA-.

Bonus saver accounts offer the potential to earn more than on-call savings accounts by paying you “base interest”, as well as “bonus interest”. However, to earn this “bonus interest”, you must meet some requirements which usually involves not making any withdrawals and increasing your account balance by a certain amount each month.

We find these accounts suitable for saving for short to medium-term goals, as the bonus interest gives you an incentive to increase your balance, while disincentivising withdrawals. They may also be suitable for emergency funds because you can earn a decent interest rate, while giving you the ability to take money out immediately in the case that you need it.

Interest rates for bonus saver accounts are variable, so can be increased or decreased at any time.

ANZ, ASB, and Westpac offer bonus savings accounts, while BNZ does not (however, they already offer a high interest product with their on-call savings account).

Here’s how to qualify for the bonus interest for each account:

Westpac’s Bonus Saver is our favourite option here, currently offering the best interest rates, and being the most flexible by allowing unlimited withdrawals in qualifying for the bonus interest. Their PIE option is also handy for those on higher income tax rates.

Three of our smaller banks offer a bonus saver product:

*Lower interest rates apply on balances over $100,000

Here’s how to qualify for the bonus interest for each account:

Notice saver accounts tend to offer even higher interest rates than Bonus Saver accounts. You can make as many deposits as you like, however, their downside is that when you withdraw money from the account you have to wait out a notice period (between 32 and 90 days) before you receive that money.

We see notice saver accounts as somewhat similar to Bonus Saver accounts as they disincentives withdrawals. Given your money is locked away for a notice period of 32 to 90 days, this waiting period should be enough to remove the temptation of impulse spending.

Interest rates for notice saver accounts are variable, so can be increased or decreased at any time.

Only a few banks offer notice saver accounts, with Heartland offering the most attractive rates:

^Westpac and Kiwibank notice saver accounts are PIEs

Index Fund and KiwiSaver provider Kernel also offers a notice saver product under the Kernel Save branding. This is the same as Heartland’s 32 day Notice Saver account, paying the same interest rate of 5.25% (but requires 34 days’ notice). This could be a convenient option for existing Kernel customers, as it saves you from opening an account with Heartland Bank to access their notice saver account.

Term Deposits allow you to deposit your money with the bank for a fixed period of time (between 1 month and 5 years), during which you’ll earn a fixed rate of interest. They tend to offer the highest interest rates out of a bank’s savings products. We see term deposits as short to medium-term parking spots for money you know you won’t need for a set timeframe (e.g. money you won’t need for 1 years’ time).

However, Term Deposits provide the least flexibility as you can’t make any withdrawals from Term Deposits if you change your mind. Your money in locked in until your fixed term is up, except in exceptional circumstances like financial hardship, of if your bank agrees to break your deposit (and in these cases you may be penalised, losing some or all of your interest earned). The other downside is that you can’t deposit additional funds into a Term Deposit, unless you open a new one.

The fact that term deposits lock in your interest rate for the duration of a term can be both an advantage and disadvantage. Having a fixed rate provides a predictable stream of income, and is beneficial if interest rates go down (as you’re locked into a higher rate). But this can be disadvantageous if interest rates go up (as you’re locked into a lower rate).

Further Reading:– Term deposit rates suck! What you can do – with 5 term deposit tips

Here’s the term deposit rates for each bank across various terms, for an investment of $10,000:

^These banks also offer term deposits structured as PIEs which are taxed at your PIR.

The minimum investment for each bank is:

Overall there’s not too many differences between the main banks (though ANZ is currently lagging behind and has a higher minimum investment).

TipFor shorter terms, interest is usually paid out at the maturity of the term deposit (at the end of its term). For the longer terms you can usually choose to have your interest paid out more frequently (e.g. monthly, quarterly, annually), or have it automatically compounded/reinvested on a regular basis.

Here’s the term deposit rates for each bank across various terms, for an investment of $10,000:

^These banks also offer term deposits structured as PIEs which are taxed at your PIR.

The minimum investment for each bank is:

TipThe website interest.co.nz has some handy pages comparing term deposit interest rates for various terms across different banks. To see interest rates for terms up to 1 year click here, and for rates for terms over 1 year, click here.

Fund platform InvestNow also offers term deposits from six different banks including ANZ, BNZ, Heartland Bank, SBS Bank, as well as Bank of China and China Construction Bank.

The benefit of InvestNow’s offering (over getting a term deposit directly from the bank) is that you can select from term deposits from multiple banks, without having to sign up for an account at each of those banks. Additionally, InvestNow often offers higher rates of interest than going directly via a bank.

The disadvantage of InvestNow’s term deposits is that they’re less flexible. All their term deposits pay out interest at maturity (unless the term is 2 years or longer, in which case interest is paid out annually or semi-annually), while banks often allow you to have your interest paid out or compounded more regularly (e.g. monthly or quarterly). InvestNow’s term deposits don’t come in PIE form either

TipTo help you decide between InvestNow vs a bank’s offering, you can use our simple calculator to compare the rates between two term deposits.

There’s a number of other outlets that offer term deposits, and looking at interest.co.nz’s above interest rate pages, you’ll see that the likes of Finance Direct, General Finance, and Xceda Finance offer rates much greater than the larger banks. For example, they offer 1 year term deposits with rates at least 100 basis points higher than the big 4 banks:

These outlets are non-bank deposit takers, so they aren’t banks, but are rather finance companies. They come with lower credit ratings and higher risks. Our personal opinion is that the extra returns from these deposits isn’t worth the risk – especially given that most people use term deposits to protect their capital rather than to grow it (i.e. you would invest in the likes of shares if you wanted to take on risk and grow your capital).

TipUnlike many other jurisdictions, bank deposits in New Zealand are not guaranteed by the government. However, the NZ government is currently working on introducing a depositor insurance scheme which is expected to start running in early 2024.

In this article we’ve covered a wide range of bank accounts, ranging from transaction accounts that pay no interest, to term deposits that produce a consistent stream of income:

Overall, there’s no definitive best option – in general the higher the interest you’ll receive, the less flexible the account will be when it comes to withdrawing and spending your money. So the accounts you should pick comes down to what you’ll be using your money for, and the level of flexibility you need.

There’s no definitive best bank either. None of them are the clear best when it comes to service, and none pay significantly higher interest than the others (and those that do have higher rates tend to have lower credit ratings). The best set up for you could perhaps involve setting up multiple accounts across multiple banks (e.g. a transaction account with BNZ, and a Notice Saver account with Heartland). Who you have your home loan with could also influence which bank you choose, but we’ll cover mortgages in a future article 🙂

But one thing all these accounts and banks have in common is that they’re stable and safe investments, so are best suited for short-term savings/investing. However, they have lower potential returns over the long-term, and don’t tend to beat inflation either. So if you don’t need your money for several years or decades, you may want to consider more agressive investments which are likely to outperform bank deposits over longer timeframes.

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The content of this article is based on Money King NZ’s opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with an authorised financial adviser before making any investment decisions.

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