Article written by Jason Choy, InvestNow Senior Portfolio Manager – 26th August 2025

August is Sorted’s Money Month, and the 2025 focus is on financial resilience.

It’s a powerful reminder for every Kiwi that a robust emergency fund is your first and most important line of defence against life’s surprises.

But here’s the issue: the way we traditionally think about “saving” could be costing us. While stashing all our cash in a bank account feels safe, it can often mean missing out on better returns, valuable tax advantages and smarter risk management.

A recent survey of InvestNow customers revealed that two-thirds keep their short-term savings purely in a bank account. While there’s nothing wrong with this, it’s worth asking: could your cash savings be working harder for you, without taking on undue risk?

The answer is a resounding yes.

Saving is Investing: Your First and Most Important Decision

Every time you put money in a savings account, you’ve made an investment decision. You’ve chosen to invest your cash with that bank, taking on their specific credit risk, in exchange for a return on your money.

Like any investment decision, it’s important to be intentional about our choices, and align it with our financial goals and needs.

Ask yourself: what is the goal for this cash? Is it for day-to-day expenses, a European holiday, or to generate a solid return while maintaining a rainy day emergency fund?

For many Kiwis, it’s a combination of all the above (or variations of it), but a standard on-call savings account isn’t optimised to achieve it all. In fact, holding all of your cash with a single bank can be more risky than spreading it across different institutions.

Just as there are different bank accounts for different goals, there are different liquid investments designed to maximise your cash. Let’s break down the options.

The Contenders: Where to Park Your Short-Term Cash

On-Call Savings Account: The default option.

• Pros: Instant access. Best for day-to-day expenses and your first layer of immediate cash needs.
• Cons: Typically offers the lowest returns. The ease of access can be a temptation to spend.

Term Deposit: The classic choice.

• Pros: Guaranteed return at rates typically higher than average on-call accounts. Great for setting money aside for a known upcoming expense or purchase.
• Cons: Money is locked in. Penalties for early access, or potentially no access at all depending on the T&Cs, make it ill-suited for unknown emergencies and life’s surprises.

Cash Fund: The modern optimiser. A cash fund is generally a low-risk investment that pools money into a diversified portfolio of short-term, interest-bearing assets like bank deposits.

• Pros: Net returns typically higher than on-call accounts, diversified across multiple banks, with cash available within a couple of days’ notice. A great option for the core of an emergency fund.
• Cons: Unlike savings accounts or term deposits, cash funds don’t offer a fixed return. There are also (modest) fund management fees.

Why Cash Optimisation Matters: Diversification and Tax

If you take nothing else away from this, it’s important to remember that there are viable, safe alternatives to the traditional savings account that can help you get more out of your cash.

Two key factors make moving beyond a standard savings account a smart move in 2025:

• The $100,000 Deposit Guarantee: Term Deposits are much more appealing now with the recent passing of the Deposit Takers Act, which guarantees up to $100,000 per customer, per licensed bank or deposit taker. This essentially means that if the bank or deposit taker goes bust, you’ll get anything up to $100,000 back from the government.
  
  It’s great news for safety, but if you have a larger amount of cash savings, holding it all at one bank leaves anything over $100,000 exposed.

This means diversifying your Term Deposits across multiple banks – something the InvestNow platform facilitates seamlessly – now has several key benefits, including greater insurance coverage and the ability to potentially access higher interest rates from a wider pool of Term Deposit providers you may not have otherwise considered.

• The PIE Tax Advantage: Cash funds feature a Portfolio Investment Entity (PIE) structure, which caps your tax rate at just 28%. This compares well to a standard term deposit or most savings accounts, which usually charge tax at your marginal income tax rate of up to 39%. This is a potential game-changer for your returns.

To put some numbers to this, let’s take as a hypothetical example the Milford Cash Fund, which as at 31 July 2025 reported a yield to maturity (the current return of the fund’s underlying holdings) of 3.3%. For illustrative purposes, let’s assume there are no changes to the fund and the full 3.3% yield is realised, then deducting the 0.20% p.a. management fee the fund charges and the maximum 28% PIE tax rate, this results in a net return of 2.2%. For a 39% marginal tax rate investor to earn this same net return through an on-call savings account, the gross interest rate offered would have to be a whopping 3.7%, which even most ‘serious saver’ accounts don’t currently come near.

Practical Tips to Building a Resilient Cash Strategy

When setting your cash strategy, you don’t have to choose just one approach. Oftentimes, a smart, resilient approach is to use each tool for a different purpose. That can involve ‘bucketing’ your cash into different tiers:

• Tier 1: Instant Access: Keep a portion (e.g., one month’s expenses) in an on-call savings account for daily expenses and immediate needs.
• Tier 2: Optimised Core: Hold the bulk of your emergency fund (3-4 months’ expenses) in a low-cost cash fund. This aims for a higher return, benefits from PIE tax rates, and diversifies your risk exposure.
• Tier 3: Lock it In: For any known future expenses, a Term Deposit can play a key role in locking in a rate. Consider spreading these across multiple banks, and look out for any higher interest rates on offer outside the traditional big Australian banks to make the most of the new $100,000 guarantee.

Conclusion: Resilience is More Than Just Having Cash

Financial resilience isn’t just about the amount you’ve saved; it’s about the wisdom behind where you hold it. By optimising your cash savings and emergency fund, you ensure it’s not just sitting there – it’s growing, it’s tax-efficient, and it’s protected through diversification.

This Money Month, take a fresh look at your savings. Could they be working harder for you?

Compare low-cost Cash Funds and Term Deposits on the InvestNow platform today and make your savings work smarter.

Disclaimer:

This information is provided by InvestNow Saving and Investment Service Limited (“InvestNow”). The information and any opinions in this publication are based on sources that InvestNow believes are reliable and accurate. InvestNow, its directors, officers and employees make no representations or warranties of any kind as to the accuracy or completeness of the information contained in this publication and disclaim liability for any loss, damage, cost or expense that may arise from any reliance on the information or any opinions, conclusions or recommendations contained in it, whether that loss or damage is caused by any fault or negligence on the part of InvestNow, or otherwise, except for any statutory liability which cannot be excluded. All opinions and market commentary reflect InvestNow’s judgment on the date of this publication and are subject to change without notice. This disclaimer extends to any entity that may distribute this publication. The information in this publication is not intended to be financial advice for the purposes of the Financial Markets Conduct Act 2013, as amended by the Financial Services Legislation Amendment Act 2019. In particular, in preparing this document, InvestNow did not take into account the investment objectives, financial situation and particular needs of any particular person. Professional investment advice from an appropriately qualified adviser is recommended before making any investment. All Investments involve risk.