Banking strategy

February 16, 2009

One of the many effects of “the current economic situation” is that interest rates offered by banks have dropped enormously. This is good news for those who already owe debts, but it’s pretty crap for people who are saving cash.

The banks have not of course lowered their fees, and this means that we now have an interesting situation.

Lots of banks have account types where the monthly fees can be quite chunky.

The accounts I have with Kiwibank have a some very useful features, including interest on the group balance, but if your group balance is less than $4000, the account fees are $15 per month.

$15 per month is a lot. In fact, avoiding this is like earning 4.5% after tax on your $4000. It would be better, in fact, for me to have that $4000 minimum balance at no interest than to have it in an ordinary savings account. Given that you do get interest, it’s even better. Interest rates will have to get back to the heady levels of a year ago before the economics make it best to put every cent in the high interest call account again.

Conclusion 1: if you have the sort of fancy transaction account where a minimum balance is required to avoid fees, and you have that amount somewhere else, it may well pay you to move it back to your transaction account.

Conclusion 2: in looking around while writing this post, I see a lot of banks have accounts that are either free, or only $5 per month, if you don’t need a cheque book or make a lot of transactions in a branch. It would also pay to move to such an account unless you really need those extra features.



  1. Kiwibank have a particularly good transaction account with no fees if you do most of your banking electronically. It’s called Free Up. The only think you can’t get with it is a chequebook, but who uses cheques these days?

  2. absolutely agree. the main feature i look for in savings or even ‘holding’ accounts is the absence of fees. they’re a particularly insipid way to siphon money out of user’s accounts.

    another is transaction fees. if you’re charged per transaction, then it pays to take *all* of your weekly money out in one hit, and do not use your eftpos until the next week.

    firstly it makes you remember that money is actually limited… and therefore helps you budget. and second you’re not paying a fee each time you buy the milk at the dairy.

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