NZ Herald 25 August 2007

AIn finance, there’s virtually no such thing as a free lunch. If you gain in one way, you tend to lose in another. Still, while the lunch you’re suggesting is not free, it seems to be a better meal.

For readers who missed last week’s column, that correspondent has $US100,000 in the US, earning around 2 per cent, which he wants to use in about ten years.

“Should I bring it all over now, taking advantage of the 8.2 per cent bank term deposits, or leave it in the US, hoping that the New Zealand dollar will come down in the next ten years?” he asked.

I replied that it’s impossible to forecast foreign exchange rates or interest rates. A low-risk strategy would be to bring some money over now and then gradually move the rest in equal lots over the years.

Now you’ve come up with an alternative move. At first I thought you were suggesting that, through the ANZ account, someone can leave their money in an overseas currency but earn close to New Zealand interest rates on it.

It sounded too good to be true. And sure enough, Vishal Virmani, head of international payments at ANZ, says the interest rates paid on their foreign currency accounts are set at the same rates as what is offered in the currency’s home country.

Nevertheless, he says, rates paid on ANZ’s US currency accounts range from 3.2 per cent on a call account to 4.63 per cent on a one-year term deposit — or at least those were the rates when I wrote this.

While they are well below New Zealand rates, they are considerably better than last week’s correspondent’s 2 per cent.

That implies that he is not in a good US account. But, Virmani says, it would be difficult for him to switch accounts in the US while he is in New Zealand.

He might, therefore, want to move the money to an account like yours, or similar, as an intermediate step.

I would then suggest he gradually transfers the money into an ordinary New Zealand account, as suggested last week.

By the way, ANZ is not the only bank offering foreign currency accounts — although Virmani says ANZ and National Bank are the only two offering the specific account you mention, which is something between a foreign currency call account and a foreign currency term deposit.

Thanks for a helpful suggestion. The only thing I’m not so sure about is your last sentence. While we all think we like to have choice, sometimes it seems to just complicates life.

AWe both are now. The Gareth Morgan team have updated their website to include the more recent information in this column last week — and offered an explanation as to why they were slow to do that.

We could just leave it at that. But there’s so much misinformation about this issue that it seems worth going into it again.

Firstly, what I said last week was more complicated than the way you have quoted me. When deciding when the KiwiSaver tax credit starts, sometimes the joining date matters but sometimes it’s the date of the first contribution. The rules are:

• If you join KiwiSaver via an employer, your tax credit start date is the first day of the month in which KiwiSaver contributions are taken out of your pay.
• If you join via a provider before October 1 this year, your start date is the first day of the month in which you sent in your completed membership form — as long as you make at least one contribution of any size by October 31. This applies to employees and non-employees.
• If you join via a provider from October 1 2007 on, your start date is the first day of the month in which your provider receives your first contribution. Again, this applies to employees and non-employees.
• If you are an employee as well as self-employed and you join via an employer as well as via a provider, your start date is the earlier of the two dates.

Sue Kerr, one of the people who runs Gareth Morgan’s website, says they delayed updating their site when the new rules came out because they were unclear about how to define “the month in which you sent in your completed membership form” in the second item above.

Is it when the form is signed, when it’s received by the provider, or when it’s processed by the provider?, Kerr asks. As she points out, July 30 can turn into August 4 during that process.

As a result of your inquiry, though, Kerr has put the new rules on the Gareth Morgan site, along with a note about her unanswered questions.

Meanwhile, she and I have asked Inland Revenue for guidance, and I was the lucky one who got the first response.

According to an IR spokeswoman, the proposed legislation says, “The member tax credit starts from when the KiwiSaver scheme provider receives a valid application for membership from an individual.”

That’s clear enough for my purposes. But Kerr is still worried about exactly when receipt of an application takes place. And fair enough. Providers are the ones who will have to deal with people who end up on the margin.

Situations like this — where detail is lacking — are too common around KiwiSaver. It’s not fair to blame Inland Revenue. The blame must lie with the government’s much-too-hasty introduction of KiwiSaver.

ASo do: AMP, AonSaver, Fidelity Life, Gareth Morgan, Grosvenor and perhaps other providers who didn’t respond to my request. Also, as noted last week, ING and SuperLife accept lump sums.

Thanks to all those providers who responded.