Also: More winners of books.
QAs a long-time reader of your column I valued your views last week on repatriation of overseas funds. However, may I suggest a possible alternative?
Early this year I was fortunate to receive quite a substantial legacy from a relative in England. Being retired, and having no immediate need of the money, I was in much the same situation as your correspondent.
Because of the poor interest rates in UK, I was reluctant to leave my money there. Conversely, with the value of the NZ dollar being so high I was loath to bring it here.
On the advice of a friend, I have transferred a large part of the inheritance to a foreign currency investment account with ANZ in Wellington. There it is remains in sterling until I need it. Meanwhile it is earning interest on a tiered basis.
There is no monthly account fee, and I am allowed one free withdrawal a month. I have ready access to the funds if I wish to convert to NZ dollars (when the exchange rate comes down) or can remit sterling back to UK for use there.
I believe your correspondent could transfer his funds in US dollars to a foreign currency term deposit. There it could be invested on a fixed term. Again, interest is tiered and depends on the amount invested.
While he may not receive the existing domestic bank interest rate, I have a feeling it could be more than he is receiving in the US. Also, the money is as secure as it can be these days.
As you rightly point out it is virtually impossible to find an answer to juggling interest and exchange rates.
Based on long experience, however, I would recommend to your correspondent that he retain a bank account in the U.S., even if most of his money is here. So far as he is able to do so, this will enable him to have a choice between two economies, exchange rates and two banking systems.
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.
QIn the Herald last week you said that IRD calculates the government’s KiwiSaver “tax” credit from the first of the month in which a member joins.
However Gareth Morgan in July stated on his website (gmk.co.nz), and still does:
“To receive the maximum benefit of the annual tax credit you should make your first contribution to your KiwiSaver account before 31 July 2007.
“The IRD has announced, ‘…the member tax credit will apply from the first of the month in which the contribution is made. This means, for example, that all contributions that begin in July will be matched by a tax credit from 1 July; those that begin at any point in August will count as having begun on 1 August, and so on.’.”
Who is correct Mary?
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.
QRegarding your column in the Weekend Herald on KiwiSaver providers that accept lump sums — I can confirm that Westpac KiwiSaver scheme does accept lump sums.
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.
MORE KIWISAVER INFO
For more on the tax credit start dates, including different scenarios from Inland Revenue, scroll to the bottom of the KiwiSaver book page on www.maryholm.com. The page also includes basic information about KiwiSaver. [This page has been removed from the website. Visit kiwisaver.govt.nz for up-to-date information.]
Other sources of info: Check out the Retirement Commission’s website, www.sorted.org.nz or the government’s www.kiwisaver.govt.nz. Alternatively, call 0800 KiwiSave (0800 549 472, Monday to Friday 8 to 8, or Saturday 9 to 1.
The following are more winning entries in our giveaway of 30 copies of my bestselling $9.99 book, “KiwiSaver: How to make it work for you”, published by Random House.
Contestants said in 40 words or less why they should win the book. The entries are in no particular order.
Mary, Mary, quite contrary
How do my savings grow?
With bonds and shares and “Bulls and Bears”,
And KiwiSaver providers all in a row.
Perhaps I really oughta
Ignore Alan Bollard and choose bricks and mortar
I’m ancient and don’t need “The Book”, but my kids keep asking me about being KiwiSavers, and I’d like to encourage them, and even inspire them!
Mary’s comment: My efforts to get your address have failed, John. If anyone knows John’s address, please email me so we can send him a book.
As a self-employed rural midwife for 11 years on call 24/7 for my clients, plus call for the local maternity unit, I deserve to retire and travel the world. I need money. The KiwiSaver book will be a start.
Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.