Bank accounts and fees
Our guide shows you the different types of bank accounts, smart ways to cut your bank fees, and how to switch banks.
You could easily be paying your bank hundreds of dollars a year in fees - and it's money you probably don't need to spend.
For everyday (daily use) accounts, most banks charge either a monthly base fee, transaction fees or both. A bank’s also more likely to offer you a better deal on your on-call account fee if you have a mortgage above a certain size.
These are designed specifically for customers to maximise their savings. This means most banks have no account-maintenance fees on savings accounts.
Withdrawal fees are likely to apply to savings accounts. Interest can be paid on your account in several ways. There are "flat" rates and "tiered" rates where higher levels of saving are rewarded with higher interest rates.
There are also accounts which pay a flat base rate and a bonus rate if no withdrawals (and/or a deposit) are made each month. In most cases, if you withdraw money you’ll lose the opportunity to get bonus interest.
Tertiary students are the high earners of the future – so banks are keen to lure them in early.
Most important here are low or no fees and access to cheap (or interest-free) credit.
Almost all the banks offer special “tertiary student accounts” with no monthly account-maintenance fees.
A credit card may be tempting but its high interest rate means debt can build up fast. An interest-free overdraft is a better alternative: it allows you to borrow up to a set amount without having to pay interest. Most banks offer this as part of a student account – although you’ll have to meet the bank’s criteria for lending (it’s not automatically granted) as well as paying a monthly overdraft fee.
Occasionally students may need to borrow more than their interest-free overdraft can allow – perhaps for bond fees or unexpected study costs. It’s a good idea to check how much your bank will charge for this.
Tip: The interest “freeze” on your overdraft is likely to end with your studies.
Most banks offer “superannuitant” accounts with no maintenance or transaction fees if you have your NZ Super or pension paid into this account – although penalty fees and fees for “special” services will still apply if you incur them.
Penalty and service fees
Dishonour fees – and “penalty” fees in general – are the most controversial bank fees. This is because their size doesn’t always correspond with the cost of what triggers them.
In the past banks have argued that the purpose of these fees is not just to recoup costs – it’s also to deter customers from certain behaviour. But in its investigation of late-payment fees on credit cards, the Commerce Commission didn’t accept this argument: it said there was no evidence such fees work as a deterrent. It also considered that late-payment fees which generated profit (rather than simply recovered costs) did not comply with the Credit Contracts and Consumer Finance Act.
More on transaction account fees
Everyday transaction account fees can quickly add up. But by using the right type of account and getting any exemptions you qualify for, you can reduce or be rid of most of them. The trick is knowing which will work best for you.
Many people can avoid paying monthly base fees and transaction fees – you just need to know how.
Lots of business. Some banks will chop the fees on your day-to-day account if you have a lot of other business with them, such as a mortgage, term deposit or managed fund investment. The level of business needed to get the fees to zero varies with the bank.
Certain revolving credit mortgages. With these home loans, your income is credited directly into the home loan account, which helps reduce the interest bill and pay the loan off faster. You also use this account to do your day-to-day banking.
High balance accounts. Most of the banks have at least one day-to-day transaction account that has no base or transaction fees if you keep a minimum balance of, typically, $4000 or $5000, or if you keep your transactions below a certain number each month. Most of these accounts pay interest on the balance.
The golden age. If you're over 65 you shouldn't be paying monthly base fees or transaction fees: a lot of banks waive them if you have your super payments direct-credited into your account. You may need to remind the bank about this.
Children and students. If you're under 19, in tertiary study, or you've graduated within the last two years, you'll be able to find a fee-free bank account from most banks. Working people under 30 can also find some good deals.
Play your cards right. You may pay a fee every time you use your eftpos card, but nothing when you use your credit card. However, if you’re using your credit card, you’ll need to pay it in full and on time every month to avoid being hit with high interest rates.
Go online. Most banks charge hefty fees when you do your business in the branch. Using online banking is an easy way to avoid charges.
Try haggling. If you’re taking out a big mortgage ask what the bank can do to sweeten the deal. For starters, ask for no annual fees on your credit card.
Here are some of our members' experiences:
- "We were paying over $250 a year in bank fees. We had money invested with them, so complained. Now most of it is wiped."
- "They gave me a rate half a percentage point below the market rate with negotiation – saved me changing banks."
- "I rang to say I was switching my mortgage to Kiwibank, and now they have given me a discount on our floating rate and account fees."
Fees you can't avoid
You may be able to drastically reduce or eliminate ordinary day-to-day bank fees, but with most banks there are some fees you can only avoid by not using the service.
- You'll usually pay fees for using ATMs or eftpos facilities overseas.
- You'll sometimes face one-off charges for setting up or altering services such as automatic payments.
- You'll also be charged fees if the bank has to bounce one of your cheques or electronic payments.
If you change the way you bank, or shop around for an account that better suits your way of banking, it's highly likely you'll be able to keep more money in your pocket.
- First up, check the fees on your existing account, and then work out how to avoid them. For example, writing a cheque for cash might cost $3 but getting cash out with an eftpos purchase would cost just a 35 cent fee. That's a no-brainer.
- Avoid the manual model. Most banks charge hefty fees if you write a lot of cheques or do business in the branch. If you haven't signed up for internet banking yet, you're missing an easy way to cut fees. Make an appointment with a personal banker at your local branch, and ask them if you've got the best accounts for your circumstances. Most banks have a choice of accounts, and you may not be in the best account for you.
- Switch banks if you find a better deal elsewhere. Often banks offer new customers a better deal than existing ones.
If you need an overdraft, arrange one with the bank. There will usually be set-up and monthly fees, but it will work out less costly than regular dishonour or honour charges. If you feel the bank has charged fees unreasonably, talk to them. Many consumers tell us they have been able to get some charges reversed.
Check your balance regularly, especially if you think you may be sailing close to the wind. Signing up to internet banking lets you check balances at any time.
Think about interest rates
When you’re shopping for better deals, keep your focus on your overall banking costs. Savings you get on bank fees may be whittled away if you have to pay a higher interest rate on your mortgage or you give up a good interest rate on your savings.
Understand how interest works
If you keep a high balance in your account, you may only consider the rate of interest paid, but there are three other issues to consider too.
How interest is calculated. Some accounts calculate interest on the daily balance, but others calculate it on the minimum monthly balance. In the latter case, you may end up receiving less interest.
Say you have $500 in an account for 29 days in the month, but only $10 on one day. If interest is calculated on the daily balance, you'll be paid 29 days' worth of interest on $500 and one day's worth of interest on $10. But if interest is calculated on the minimum balance, you'll be paid 30 days' worth of interest on only $10!
How often interest is credited to the account. The more often interest is credited, the more it will compound (that is, you'll earn interest on interest). Whereas some accounts credit interest monthly, others only credit it quarterly or yearly.
Whether interest is paid on the full balance or marginal tiers. This is only relevant for accounts that have a tiered interest rate structure, for instance an account which pays 1% on balances up to $1000 and 2% on balances higher than this. On such accounts, interest may be calculated on the full balance or on marginal tiers. The full balance calculation is better.
Assume the account has $1500 in it. If the account pays interest on the full balance, the account holder would be paid 2% on $1500. If the account pays interest on marginal tiers, the account holder would be paid 1% on $1000 and 2% only on the remaining $500.
Switching banks can seem a big hassle. You've got to get your wages or benefit credited into a new account, you may have to transfer your mortgage, and there are all those other payments that you've set up to come out automatically – things like power, phone, rates etc.
You’ll also need to go through the process of getting new eftpos, credit cards and PINs.
When you’re switching banks you need to keep an eye on both your old and your new banks to make sure they do things correctly. Here’s our advice on handling the process.
1. Before you switch, ask your bank to do better
Ask your existing bank to look for ways to cut your costs. Make an appointment with a personal banker at your branch to do this. Would it help if you changed or combined accounts, or consolidated your debts? Once you know how much you could save, you'll have a benchmark to help you compare your bank with others. And it may save you the trouble of having to switch at all.
2. Check your accounts
Look at a few months’ of transactions, and work out how you use your bank. How many transactions do you make each month? How many times do you use eftpos, ATMs, cheques, over-the-counter deposits and withdrawals? How many direct debits and automatic payments do you set up? How low do your balances fall? Are you earning interest from any of your accounts? Gathering this information will help you figure out what's causing your fees to mount up.
3. Shop around
Use our resources to help you work out possible accounts to move to, and check the banks’ websites. Remember, you don't have to get all your banking services from one bank. For instance, don't be put off an account just because it doesn't have a credit card – you could get one elsewhere.
4. Set up the new accounts
You can apply for a new transaction account over the phone, online or by going into a bank branch. It may help to go into a branch if you're not sure exactly what you want. A personal banker can talk through your options. When you go to the branch, take them a breakdown of how you use your accounts.
If you open the account without visiting, you’ll still need to go in at some point to sign documentation, identify yourself and be issued with a PIN number. Remember to take in appropriate ID and your IRD number.
5. The switch
You may be able to use your new bank’s switching team to open your new accounts, move your outgoing payments and close your old accounts. Or you can do it all yourself.
Open the new account before you close the old one and keep both accounts running for a few weeks. This gives you the chance to reorganise outgoings, including direct debits and automatic payments, and to make sure your wages are going where they should.
- Direct debits: You’ll need to phone each company (phone, power, etc) and get them to send out a new direct debit form. Allow plenty of time for this to come through. After filling out the forms with the details of your new bank, return them to the companies debiting the money.
- Wages: Don’t forget to tell your employer your new account details.
- Other income: Make sure the details are changed for any money you receive from investments and other automatically-paid sources of income.
- Automatic payments: Remember to re-set automatic payments with your new bank and make sure they go out on the correct dates. You can do this yourself through phone or internet banking or through your branch (for a larger fee).
Leave enough funds in your old account to cover any fees. Once you're sure everything has worked out, close the account and cut up any old cards. Switching banks can often be more complicated and expensive if you have a mortgage. Before you switch, ask your bank whether there are any fees for transferring/cancelling a mortgage.
Using the banks’ switching teams
All of the major banks have switching teams that will move your automatic payments, direct debits and internet banking bill payment details to your new bank for you and close off your old accounts.
Before 2010 there were no clear rules setting out exactly how the banks must co-operate with each other when transferring a customer’s payment details. So, one bank could have held up the process if they were losing a customer to another bank. Now there are rules the banks have agreed to follow.
Payments NZ took over the governance of payments clearing and settlements from the New Zealand Bankers Association in December 2010. It’s now in charge of setting and overseeing the rules for how information about automatic payments, bill payments and direct debits are exchanged between banks when a customer switches.
Together with the major banks (ANZ, ASB, BNZ, Citibank, Kiwibank, HSBC, TSB and Westpac), Payments NZ developed standards and processes to make it simpler and faster for customers to switch banks. For instance, there’s now a standard form that customers fill in, authorising their new bank to contact their old bank for the details of their accounts and regular payments.
It doesn’t matter whether the bank is gaining or losing a customer – they must follow the rules and work with the other bank to change payments over in a timely manner.
How it works
You talk to your new bank and arrange what accounts you want to open. Your new bank will then give you a “Switching Bank Request” form.
You fill in the form and give it to your new bank. The form details:
- Your old bank’s name and your account name.
- Your old account numbers and if there are automatic payments, bill payments and direct debits linked to them.
- The dates to cancel existing payments and close your accounts at your old bank.
- Your signature authorising your old bank and new bank to exchange information about your payments, and authorising any places you have direct debits with to use your new accounts once they’ve had written notice from your new bank.
The old bank will then advise the details of your regular outgoing payments. The new bank will manage the entire account opening and payments switching process for you, including reloading your existing payment authorities against your new account.
How long does it take?
While the transaction and savings accounts at your new bank can be open within a couple of days, it can take up to 14 days to finish switching the payments and close your old accounts.
The Payments NZ rules give the old bank 5 business days to respond to the new bank with your payments information after receiving the switching form but they still may not do this until day 5. Your new bank then has to have time to set up the new payments.
Payments NZ believes the majority of information exchanges are handled within the prescribed 5 business day turnaround period. However, it doesn’t collect any figures on this. The banks say most information exchanges are happening within the 5 days.
It may also take longer than 5 business days for what the banks call an “initiator” to respond. An “initiator” is a business or service provider, like a power company or telco, which you have a direct debit set up with. Your new bank will let them know your new account number.
Account closure may take longer than 5 days. If an account is overdrawn it’ll need to be cleared first, or there may be cheques that haven’t been processed yet.
You can choose to take longer to close your old accounts and have balances transferred. For instance, you may know you’re going to be receiving money at some point in the future and want to keep your old account open until that has happened.
What’s not covered?
Direct credits are not handled by the switching teams. You’ll have to advise your employer or anyone else that deposits money to your account of your new account details. BNZ, Kiwibank and Westpac have a letter template that you can use and Westpac offers to contact your employer for you. If you’re a landlord don’t forget to tell your tenants. If you receive money from Work and Income or IRD, let them know.
While the use of the switching teams is free, you may have to pay any fees for setting up the automatic payments and direct debits. Check with your new bank.
Is switching banks easy?
Very much so. You can do it yourself. First, check what accounts you have, fees you pay and interest you’re earning as a starting point. Second, shop around by checking other banks’ websites to see how they compare. Next, set up accounts at your new bank (make sure they’re up and running before you close your old accounts).
All major banks have switching teams to help you move – they’ll even reload your existing payments to your new account. Your old bank has five working days to give your new bank your details.
Remember, you don’t have to use one bank for all your banking. You could be better off sticking with your old bank for everyday banking while having your credit card with a lower interest rate with another. If you have a fixed-rate mortgage you’ll need to wait until your term is over, otherwise you may pay a considerable break fee.
If I accidentally pay money into the wrong account, can I get it back?
It can be difficult. Banks can only reverse a payment with the permission of the person or trader who received the money. This usually involves the recipient’s bank contacting the account holder and asking permission to give the money back. If they refuse, you’ll have to take up the matter yourself, which can be difficult as the bank’s main concern is protecting its customer’s contact details. As a last resort, you may have to take court action, which may not be worth it for smaller amounts.
Before you authorise an online payment, double- or even triple-check the bank account details.
What should I consider if my bank offers me a new product?
Don’t automatically assume it’s in your best interests. Though the Responsible Lending Code states banks have a duty to make sure the offer is suitable and won’t lead to hardship, a report published by the Financial Markets Authority last year found incentives are highly sales focused, which means there’s a risk of being sold a financial product you don’t need.
Whether it’s a new credit card, insurance product or loan extension, ask yourself whether you really need the product. Consider the fees and ask the bank about alternatives. Also ask the bank staff member if they’re getting a commission from the sale.
How do I make a complaint about my bank?
Your first port of call is your bank’s complaints process. If you’re not happy with how your complaint is treated, you can take your case to the free and independent Banking Ombudsman scheme. The scheme will either help you and your bank resolve the issue informally, or investigate the issues and recommend a solution.
The Ombudsman can help if: you’re complaining that the bank’s action has caused you to suffer financial loss, damage or inconvenience; your complaint is about a banking or financial service; or you’re claiming a loss of less than $350,000. However, you’re out of luck if you want to complain about the bank not lending you money, interest rate policies, or standard fees and charges.
If I break a term deposit am I entitled to any interest?
A term deposit locks in your funds for a fixed period and interest rate, and banks don’t legally have to let you break early. If the bank agrees, it will probably reduce the interest rate on the money you’re withdrawing. It may also try to recover a “break fee” – the interest paid at the higher rate while it had the money.
If you think you’ll need the money before the term expires, ask the bank what you’ll lose if you have to break. Alternatively, consider a shorter-term option. Some savings accounts pay more interest than a short-term deposit.
When should I choose a PIE account over a regular savings account?
A cash PIE (portfolio investment entity) is an alternative to a savings account. There’s usually a minimum deposit required but you get access to your money while earning interest. A PIE’s main advantage is you pay a lower rate of tax on the interest you earn depending on your income.
Generally PIEs suit those on higher incomes. If you earn between $48,000 and $70,000 your tax rate for savings (called a prescribed investor or PIR) will be 30%. If you earn more than $70,000, you’ll pay 33% on your savings. PIEs have a maximum tax rate of 28%, so you’ll end up with more money in your pocket.