Majority of respondents to FMA survey erroneously think NZ bank deposits are guaranteed

Majority of respondents to FMA survey erroneously think NZ bank deposits are guaranteed

That New Zealand is the only OECD country without explicit deposit insurance appears to be news to many New Zealanders.

A survey conducted for the Financial Markets Authority (FMA) has 52% of respondents believing New Zealand bank term deposits come with a guarantee. On top of this 42% said KiwiSaver was guaranteed. In fact neither the Government nor providers guarantee these investments, albeit some providers offer capital protection products.

“Every investment comes with some level of risk and we need to ensure people are reading the descriptions in the product disclosure documents as these should clearly spell out the risks and the returns associated with a product. This product disclosure should describe whether an investment is guaranteed or not,” said Simone Robbers, the FMA's Head of Primary Markets and Investor Resources.

(See all our stories on deposit insurance, or the lack of it, here.  And see our recent video interview with FMA CEO Rob Everett here.)

The survey results were released as part of the regulator's contribution to Money Week, which is this week and encourages New Zealanders to think about their personal financial situation.

The FMA's survey asked respondents to assign a risk-level to various investments, including shares, KiwiSaver funds, term deposits, bonds and residential property investment. People were also asked whether these investments came with a guarantee you would get all your money back.

"81% of respondents said term deposits were low risk and 73% said KiwiSaver conservative funds were low risk," the FMA said.

"But when it came to higher-risk investments such as shares and growth funds the results gave a mixed picture. 34% said KiwiSaver growth funds were high risk, while 21% identified growth funds as low risk. 44% thought shares were medium or low risk. Most experts would accept that shares are a higher-risk investment choice, albeit with higher potential returns over the long term."

Robbers said although people seem to understand term deposits and fixed interest investments are lower risk investments, there's confusion over the levels of risk of growth focused investments.

“We want to help people become comfortable about discussing all kinds of investment products so they can make more informed decisions. It’s important to understand what level of risk is most suitable for you and the mix of investments that will help you reach your financial goals," said Robbers.

"Only 17% of those surveyed thought that none of the investments included in the research came with a guarantee," she said.

Here are further key findings from the survey;

· 43 per cent thought residential property investment was a low risk option, while 48 per cent considered this medium risk.

· There were few noticeable differences between age groups in their understanding or approach to risk. However when it came to residential property investment, 13% of 18-24 year olds thought property was high risk compared to 3% of 50-64 year olds.

· Almost two-thirds (62%) prefer steady investments offering a reliable return, compared to 39 per cent wanting the best return, even if the value of the investment went up and down.

· Men were more likely than women to want the best return for their investment (43% v 35%). Women were more likely to want to maintain all the money originally invested (53% v 45%).

· Aucklanders are more likely than the rest of the country to prefer the best return overall (46% for Auckland v 39% for all respondents). They are also more likely than average to want an investment which will double their money in 10 years (15% v 10%).

· Half (49%) of those surveyed would take a day or less to choose where to invest $10,000, and nearly one-in-five (17%) would take an hour or less.

· A third (34%) of those surveyed said they intend to seek financial advice in the next year.

The survey was conducted by Colmar Brunton with 1,028 people interviewed between 27 August and 2 September this year. The margin of error is +/- 3.1%.  Full results of the survey are here.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Isn't it interesting that 1 in 2 New Zealanders is unaware of the risk involved in bank deposits: Only $10,000 are guaranteed.
NZ's very odd banking regulation is effectively insuring if not encouraging the banks' risk taking behaviour. If the risk taking pays off, the banks win, otherwise the bank customers pay for the loss. Who wouldn't love to run a business like that.
It's time for NZ to change the regulation and catch up with the OECD nations.
 

“Every investment comes with some level of risk and we need to ensure people are reading the descriptions in the product disclosure documents as these should clearly spell out the risks and the returns associated with a product. This product disclosure should describe whether an investment is guaranteed or not,” said Simone Robbers, the FMA's Head of Primary Markets and Investor Resources.
 
In the case of  term bank deposits both default and interest rate risk should be clearly defined for relative tenor terms with reference to the so called risk free rate (NZ Government 3 month TBills) - furthermore it should be mandatory that these relative risk weightings are approved by the regulator and should be investor accepted with a signature.

OMG. That's scary reading. I can understand many might think bank deposits are guaranteed ,but kiwisaver?

The scariest of all is that a third will seek investment advice.

The blind leading the blind.