Background
Beginning in 2007 – New Zealand had a string of finance companies fall over (they were over leveraged (too much debt) and in hindsight had been playing tricks with their valuations.
Following this, in 2008 – the global financial system was rocked by the collapse or near collapse of major banking organisations and (including other triggers), these global events led to the Global Financial Crisis of 2008 – 2010.
The mainstream banks in Australia and New Zealand fared well during the GFC because of their more prudent lending and risk management criteria, but the two events (the finance companies + global financial crisis) led to a loud call for a Deposit Guarantee Scheme for investments in financial institutions.
New Zealand was one of the few western countries that didn’t have some kind of ‘guarantee’ from the Government, and it was in the turmoil of these conditions that the Government provided a temporary Retail Deposit Guarantee scheme (from October 2008 – October 2010). One of the main memories of this time was the Guarantee of South Canterbury Finance that was admitted to the scheme on 19/11/2008 and went into receivership on 31/08/2010. Depositors received their money back under this Guarantee (despite charges of theft and fraud within the company).
Some of the conversations around whether there should be a deposit guarantee, and with reference to South Canterbury Finance – a lot of questions about the moral hazard of offering such a guarantee.
New Depositor Compensation Scheme (NZ)
17 years after the temporary scheme was put in place, New Zealand has put in place a permanent Retail Deposit Guarantee Scheme from 1st July 2025.
This scheme covers you for up to $100,000 per institution if your deposit taker fails. But the account has to be in a DCS protected account. It does include transaction, savings accounts, notice savers and term deposits. It can include credit balances on credit cards too.
If you use PIE’s for investing in Term Deposits or saving with your bank, it is important that you check out whether these are categorised by that financial institution as a DCS protected account.
The financial institution will make it clear on their website which accounts this applies to and the DCS doesn’t apply to an overseas office or branch.
The $100,000 is per depositor (so it can apply to Trusts) and it is per institution. IF there is a joint deposit of say $140,000 – then it would be $70,000 per person if there are two investors.
The DCS is funded by a levy on those institutions, and not all institutions will belong. It is possible that the returns that are offered by these organisations will be slightly lower to cover the levy that they have to pay. These levies will be invested into a fund which is expected to be built up over 20 years to a size equivalent to 0.8% of protected deposits (or about $1 billion).
The levies are charged on a risk based method after 1st July 2028, with a flat levy for the first three years of the scheme.
Click here to find a list of the deposit takers that are covered:
Please note: Just because a deposit taker is on that list it doesn’t mean that they are a good or safe organisations to invest with. There are a number of finance companies on the list, when you are making the investment you should still understand what the organisation is lending on and what the credit rating is. Even though your money is guaranteed, if it falls over there will still be a hassle and a time period before you get your money back.
What does this mean for you?
If you have savings and investments in excess of $100,000 with financial institutions, we recommend that you take the time to diversify your investments across institutions to take advantage of the DCS scheme. It will take a bit of work to go through all the Anti Money Laundering requirements and to manage the investment maturities, but if you have the time, it is probably worth it.
