KEY POINTS:
- From July 1, the Deposit Compensation Scheme (DCS) will protect savers’ money deposited in savings accounts with registered banks and licensed deposit takers in NZ.
- The DCS will cover up to $100,000 of a saver’s money per deposit taker.
- If a couple has a joint savings account that’s covered by the DCS, each person in that couple will be covered up to $100,000.
- Documentation for savings accounts, term deposits and PIE term accounts covered by the scheme will display a DCS logo.
From July 1, new government legislation will come into effect that will provide a level of protection for some savers should the financial institutions holding their cash go bust.
Called the Deposit Compensation Scheme (DCS), it protects up to $100,000 of savings per depositor, per deposit taker, in the event that the deposit taker gets into financial difficulty.
What does the deposit compensation scheme cover?
The DCS covers cash deposits in regular savings accounts, including:
- Current and savings accounts
- Notice accounts
- Term deposits
The DCS covers up to $100,000 of savings per depositor, per deposit taker. This means if you have savings of $200,000 spread equally across two financial institutions, your full $200,000 will be covered.
However, if you have $200,000 saved with one deposit taker, only $100,000 will be covered.
Although if you are a couple with a joint savings account with one provider, you each receive $100,000 of cover.
What doesn’t the deposit compensation scheme cover?
The DCS doesn’t cover investments such as stocks and shares, bonds and other managed investment products, including KiwiSaver.
One grey area is PIE Funds. The regulations state that certain PIE funds are covered, but only if they invest in the “protected deposits issued by a single licensed deposit taker”. For example, an NZ bank’s PIE fund that invests only in the bank’s own dollar deposits.
If you have any concerns about whether your choice of savings account or PIE fund product is covered by the DCS, just ask your provider.
To make things clearer for consumers, documentation for all PIE funds and other financial products covered by the DCS will be clearly marked with the DCS logo.
Which deposit takers are covered under the deposit compensation scheme?
The DCS covers all New Zealand banks, building societies, credit unions and finance companies that are either registered or licensed by the Reserve Bank of New Zealand to take deposits from customers.
This covers the major banks and financial institutions such as Xceda Finance and General Finance, two providers that offer the highest term deposit rates on Canstar’s database.
For the full list of registered NZ banks click here.
For the full list of licensed non-bank deposit takers click here.
What are the benefits of the deposit compensation scheme?
For savers, the DCS offers peace of mind that their savings are secure. And because the DCS covers up to $100,000 per depositor, per deposit taker, savers can protect larger sums by splitting their money between different financial institutions.
The DCS also offers the opportunity to chase higher returns via non-bank deposit takers that have lower credit ratings than the major banks.
While most of the big banks enjoy AA- ratings, smaller deposit takers usually have credit ratings of around BB. While this is still good, it can deter savers looking to deposit large sums. The introduction of the DCS affords savers an extra level of protection.
If you’re considering investing in a term deposit, you can access the up-to-date term deposit rates on Canstar’s database by clicking on the button below.
About the author of this page
Bruce Pitchers is Canstar NZ’s Content Manager. An experienced finance reporter, he has three decades’ experience as a journalist and has worked for major media companies in Australia, the UK and NZ, including ACP, Are Media, Bauer Media Group, Fairfax, Pacific Magazines, News Corp and TVNZ. As a freelancer, he has worked for The Australian Financial Review, the NZ Financial Markets Authority and major banks and investment companies on both sides of the Tasman.
In his role at Canstar, he has been a regular commentator in the NZ media, including on the Driven, Stuff and One Roof websites, the NZ Herald, Radio NZ, and Newstalk ZB.
Away from Canstar, Bruce creates puzzles for magazines and newspapers, including Woman’s Day and New Idea. He is also the co-author of the murder-mystery book 5 Minute Murder.
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