Term Deposits: A Costly Emergency Fund?

A recent chart from Simplicity chief economist Shamubeel Eaqub shows that six-month bank term deposits have been offering returns below inflation in New Zealand. According to Reserve Bank data, the average return on a six-month term deposit has been around 3.55 percent, while inflation is running at 4.1 percent.

This means that people who put their money into a six-month term deposit are essentially going backwards financially. The situation is even more dire when considering Resident Withholding Tax, which adds an extra layer of expense for those with emergency funds in the bank.

For those invested in KiwiSaver providers, such as Milford's conservative fund, the returns have also been negative over the past seven months, dropping by 0.45 percent. However, it's worth noting that even conservative funds can experience short-term losses due to rising interest rates.