Perhaps you've set up a KiwiSaver already, or maybe your company did it for you when you first signed an employment contract (and if not, make sure to contact them). But did you know providers charge different rates on KiwiSaver? That's because your KiwiSaver isn't exactly a savings account, which increases over time. It's more correct to think of KiwiSaver as a type of investment. As an investment, the interest you get is based on the worth of your account or, in other words, the rate at your account is evaluated at right now.
Since your KiwiSaver can be valued, it's exciting to credit providers because it shows a case history of your financial activity.
Firstly, why should I invest in a KiwiSaver?
KiwiSaver is a voluntary savings scheme set up by the government to help you plan for a house or retirement. It's open to all citizens or anyone entitled to live in NZ. Contribution rates range from 3-10% of your wages before tax, depending on the rate you choose. Even more beneficial for you is that both the government and your employer have to contribute once you sign up. There's also a yearly governmental KiwiSaver contribution for all members (depending on how much a member has contributed to their fund).
Which KiwiSaver provider should I trust?
There are a number of different organisations that offer KiwiSaver, although the most common one to use is through banks. KiwiSaver providers all offer different types of KiwiSaver funding, depending on your goals and the bank's lending policies. Some reasons to change are;
Lower charging fees.
Service providers charge fees on your KiwiSaver because your KiwiSaver is an investment on your behalf. It's entirely up to you which provider you choose, but make sure to check what fees they offer versus the level of risk (i.e. how much the interest rate changes). Some options will provide greater risk and ability to earn over a long time, but if you're planning on withdrawing your KiwiSaver soon this might not be a good idea, as you will have less in your account until your investment pays off (which it normally does).
Average returns.
Check to see what the return rate for your provider is on average. Don't base your decision on high returns alone because that will change. Instead, have a look at their entire history and their lending policy.
Communication.
It's always a good idea to go for someone you trust — meaning a provider who can communicate their advantages to you and send you statements detailing your expenses and earnings with KiwiSaver. All KiwiSaver accounts cost to run; you can find out more about that here.
Another tip.
Don't keep changing your provider because that will incur transfer fees and prevent you from cashing in on the savings you should be earning. Instead, make sure you are clear on why you're switching providers before going ahead with that all-important move.
How to make the switch.
You can change your KiwiSaver provider at any time and transfer over any existing savings when you do so. If you decide to switch, speak to your new provider, and they'll handle the transfer. Fees may be applied from your old provider, so double-check with them before you change.
Once you've applied for a transfer, you'll need to wait a further two weeks for the process to take. You can find a complete list of providers on the IRD's website.
You can also suspend or even exit your account, although it does mean losing out on all those potential savings. However, if you want out, timing is critical — you can only exit KiwiSaver in the first 2-8 weeks of starting a job. Your first KiwiSaver break only happens after the first 12 months.
It may seem strict, but this is enforced to ensure you stick to your savings plan. If your work situation does change, hop over to IRD's website for a personalised breakdown of your KiwiSaver options.
Calculate your interest savings.
The easiest way to calculate your savings is by trying out one online calculator. Most providers have their own, but try KiwiSaver's online calculator if you want to get a quick overview.
You'll need to know a couple of things before you make your calculation, like your earnings before tax and your employment status.
If you have a KiwiSaver already, check the details on your payslip to find out your current contribution rate. You'll also want to check out your fund type (fund type being any amount you set aside for a particular savings purpose, like retirement or a house). Your fund type will help you determine your saving goals based on how long you wish to save before withdrawing your KiwiSaver. The five categories of funds are:
- Defensive
- Conservative
- Balanced
- Growth
- Aggressive
Most likely, you'll be on a balanced fund type. If you're looking to switch providers, check if they fit in with the same saving category you want. Most providers will try to let you know what they're about on their web page, so pay special attention to the language used.
If you don't already belong to KiwiSaver, then play around with an online calculator to get a feel for what option best suits you.
In short.
Switching KiwiSaver providers is a hard decision. Ultimately, it comes down to your financial goals and what you feel comfortable doing. What's important is to be prepared and make sure you have all the information on hand before you change over.
