Discover the importance of spreading your money across multiple banks to manage risk in New Zealand, where there's no bank deposit insurance. Learn about regulatory oversight and how to choose stable banks.
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“My mum always used to have the mentality that she’d be better protected if she spread her money across multiple banks (in case one went under or something). Is there any logic to that?”
(Original question on Reddit)
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Your mother’s approach of spreading money across multiple banks is a common strategy used by some people to manage risk. This is because if one bank were to fail, the money in the other banks would still be safe.
In New Zealand, it’s important to note that the country does not operate a bank deposit insurance or deposit guarantee scheme. This means that if a bank were to fail, there is no guarantee that depositors would be able to recover their money.
However, the Reserve Bank of New Zealand regulates and supervises the financial sector, including banks, insurers, and financial market infrastructures. Only financial institutions that can demonstrate an ability to carry on their business in a prudent manner, and who have a sound reputation in the financial markets, are permitted to be registered as banks in New Zealand.
Additionally, the Conduct of Financial Institutions regime (CoFI) introduces a new regulatory regime to ensure registered banks, licensed insurers and licensed non-bank deposit takers comply with the fair conduct principle when providing relevant services to consumers.
So, while spreading money across multiple banks can be a way to manage risk, it’s also important to consider the stability and reputation of the banks you choose. It might be helpful to consult with a financial advisor for personalized advice based on your specific circumstances.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
