NZ Herald 30 October 2010

AFirst, a note to other readers: At the end of this reply, I include information about the other major banks. So keep reading, regardless of who your bank is!

Banks often take a bashing. But this time — despite the apparent disappearing act — it seems that your bank is actually treating you better than it appears to be.

Looking first at your term deposit, a Westpac spokesman says deposits are always processed on a business day. “As the term deposit matured on the weekend the funds would have been processed on Monday night and available in the reader’s account at midnight on Monday.”

But — and this is the important bit — you would have received interest for the Sunday and Monday.

He adds that a recent change in the bank’s system “now ensures that if the maturity date for a term deposit falls on a weekend the system defaults the maturity date to the previous business day or, if the customer prefers, the next business day.”

So, with a deposit that matures on a Saturday, you could now choose between a Friday maturity date, with one day less of interest, or a Monday maturity date, with two days extra interest.

The spokesman also points out that if you pay for a term deposit with a cheque, “interest starts from the time of the deposit, not when the cheque clears.”

It’s similar with electronic bill payments. “Electronic banking gives the impression of funds moving instantly although there are processes that occur in the background,” says the spokesman.

“In some instances the funds are removed from the balance shown in electronic banking — but in reality are still in your account, potentially earning interest — until they are processed.”

This, he says, stops you from “spending the money twice,” which could happen if you’ve already set up a bill payment but it’s not yet deducted from your balance. That makes sense.

When I asked the other big banks what their practices were, ANZ made the following comment: “The key with the cut-off time each business day is that all the banks need to process many transactions, which happens right through the night so that the people receiving money can see it in their account the next day.”

Here’s a breakdown of how the other banks’ practices differ from Westpac:

ANZ: For a deposit due to mature on a Saturday or Sunday, the money is made available to the customer’s ANZ account on the prior Friday night. If the customer has requested that the deposit roll over, it will roll over from day that it is due to mature, including Saturday or Sunday. Customers can set the maturity date for any day they choose, eg 185 days or 11 March.

ASB: The bank says it was the first in New Zealand to offer “real-time banking”. If a term deposit matures on a weekend, the funds are paid immediately, and if they are paid into an ASB account they are available immediately — and this will show up in account balances. If they are paid into another bank’s account, they will be transferred to that bank on the next business day. It’s similar with internet bill payments. If the payment is to another ASB account, it is immediate. If it’s to another bank, the money is moved on the next business day. When money is moved from another bank to ASB, the funds start earning interest immediately on receipt.

BNZ: Their practices are the same as Westpac’s.

Kiwibank: Their system knows if you try to open a term deposit that matures on a non-working day and increases the term so that you are paid interest until the new maturity date. If the customer is talking to the bank at the time — in other words, it’s not a paper application — Kiwibank lets them know, for example, that their 180-day term would mature on a Saturday, so the system would automatically turn that into a 182-day term deposit. It would give them the option to change to 179 days — at the same rate — if they required the funds on the Friday.

National Bank: The system always defaults to the following business day for deposits that should mature on a weekend. Customers can choose to bring this back to an earlier business day if they prefer. They can set the maturity date for any valid business day. Interest is earned for every day that the bank holds the deposit.

AGood point. I was comparing the impacts of the two options on the amount of interest you pay and how long the mortgage runs. As I explained, the impacts are the same. However, you are looking at flexibility, and that’s really important in some circumstances.

I suspect that if you did draw up a shorter-term loan agreement and later couldn’t make the higher payments, the lender would probably let you revert to your earlier plan. But it wouldn’t be as easy as just reducing payments.

All of this assumes, of course, that your lender will accept extra payments of varying amounts — which is probably usually true for variable rate mortgages. It’s not as easy to do this without penalty on a fixed rate loan — especially if you want to make large extra payments — but it’s always worth asking.

AThe key to deciding whether the gain on the sale of anything — including precious metals — is taxable is the person’s main purpose when they bought the item. If that purpose is to sell at a gain, then the gain is taxed.

If you buy shares, you might be able to argue that your main purpose is to receive dividends. If you buy rental property, you might say it’s to receive rent. But, as you point out, gold and silver don’t produce any income, so bang goes that argument for them.

And, as an Inland Revenue spokesperson points out, the same could be said for trading in overseas currencies.

However, someone might claim that they bought gold or silver coins because they were things of beauty, and they didn’t plan to sell them. And that certainly could be said about purchases of gold or silver jewelry or ornaments.

That doesn’t necessarily mean, of course, that Inland Revenue would “buy” the argument, particularly on the coins. It would take other issues into account, including whether there was a history of trading.

ANot necessarily. The fact that you didn’t buy the coins has nothing to do with whether it’s wise to keep them — unless you think the person who gave them to you would be hurt if you sold them.

If that’s not an issue, look at it this way: If someone gave you $8,500 in cash, would you buy gold coins with it?

Perhaps you would. After all, as you say, it diversifies your savings beyond bank deposits and property. And the value may rise considerably. Then again, it may fall considerably. Gold has done both in recent decades.

In other words, your investments are pretty risky. You could also diversify your savings, at somewhat less risk, by selling the coins and putting the money into, say, bonds or a share fund. I’m sure NZ Mint would help you to sell.

Then again, we’re not talking large amounts here. Assuming you have other money for emergencies, you could just keep the coins. If their value grows lots, you could eventually sell them to fund travel or luxuries. And if it falls, it’s “easy come, easy go.”

By the way, while I was asking Inland Revenue about the letter above, I also asked about your situation. The spokesperson’s response: “The person who was gifted gold coins and subsequently sells them will probably not be liable to income tax. Receipts from selling gifts would generally not come within the meaning of ‘income’ for the purposes of the Income Tax Act.”