How saving with Squirrel could get you into your first home faster

*Information accurate as at 1st September 2023*

Before the Reserve Bank finally hit pause on any further interest rate hikes in July, Kiwi had endured a whopping 12 consecutive back-to-back increases in just 18 months.

Now, we know mortgage borrowers have felt the sting of every single one of those increases, as banks have responded by hiking home loan rates from ~2.50% in late 2021 to up nearer 7.00% today.

So, if the banks have passed rate hikes on there, you’d think surely Kiwi savers must have reaped the benefits, too – right? Apparently not.

According to the Reserve Bank there’s about $75 billion (yep, that’s with a ‘b’) of Kiwi money sitting in bank savings accounts, earning an average of just 3.55% per annum in interest.

If you’ve been busily squirreling away a house deposit, there’s a solid chance you’ve got some money in that mix.

Those kinds of returns are pretty outrageous when you think about it, but it’s how it’s been for so long, most of us feel like we’ve just got to suck it up.

Well, that’s where Squirrel comes in.

You might have seen us talking about our peer-to-peer investing platform before and thought “hmmm…that’s not for me”. But if your house deposit savings are sitting there earning those stingy returns, you might want to think again. 

How does 7.42% p.a. sound instead?

That’s the average interest rate Squirrel term investment investors earned last month. 

To really make our point, we’ve crunched a few numbers. Say you were shooting for a $160,000 deposit (20% on an $800,000 house)…

If your money was earning 3.55% p.a. returns, it’d take six years and 7 months to reach your house deposit goal.*

But at 7.42% p.a. average returns with Squirrel, you’d shave 9 months off*. Think of how many more Sunday sleep-ins and summer BBQs that is you could be enjoying in your own place!

*Calculations based on $160,000 deposit (20% on an $800,000 house) – starting with a $40,000 lump sum, and tucking away $1500 in savings every month. Please note Resident Withholding Tax has not been considered in these calculations, as tax rates differ by individual – this means the actual time required to save the deposit via either channel will be longer than the time frame given here.

In other words, when you invest your house deposit savings with Squirrel, you could tick your goal of homeownership off faster!

You are also required to pay tax on your interest returns, and that applies regardless of whether you choose to save with Squirrel, or via traditional channels.

That means the timeframes given here are indicative only, and will be longer overall – but the key thing is that you may be able to shorten the time needed to save your deposit by leveraging Squirrels term investments.

Here are a few common misconceptions about investing with us, that we want to tackle up front:

My money will be locked away for years…

• You’ll have the option to sell your investment, with no penalties, whenever you like via our secondary market. We track how long it's taken (on average) for investments to sell over the last 30 days, and publish the stats in real-time on our website – right now it’s anywhere from a few hours to a few days, depending on the investment class you’re looking at. That said, there’s no guarantee other investors will be willing to buy your investments when you list them for sale on our marketplace, and you may need to hold them to term. Past performance is not a guarantee of future performance.

I might lose my savings:

• Again, while past performance isn’t a guarantee of the future, Squirrel investors have never lost a cent. And we have lots of measures in place to keep it that way.

You might invest my money in something dodgy:

• All your money‘s invested towards the very worthy cause of helping people around Aotearoa with their residential housing needs. Buying, renovating, tiny homes, building…

I need to have tons of money to be an investor:

• You only need $100 to start investing with us. $100! That’s less than a standard grocery shop (waaay less in these expensive times).

And actually, you don’t even have to invest to earn better returns with us. Enter: the Squirrel On-Call account

The Squirrel On-Call account (where you’ll need to pop your money first in order to invest it) currently pays interest returns of 5.25% per annum – accrued daily and paid into your Squirrel account on a monthly basis.

Funds in your On-Call account are held on trust with a major New Zealand trading bank and can be withdrawn into your bank account in as little as two hours, 9:00am – 10:00pm, seven days a week.

Using that same scenario from earlier (saving a $160,000 deposit, as 20% on an $800,000 house), it’d take six years and three months to hit your goal by saving with Squirrel On-Call.

That’s four months faster than with the average savings account return.

Not too shabby, right?

*Calculations based on $160,000 deposit (20% on an $800,000 house) – starting with a $40,000 lump sum, and tucking away $1500 in savings every month. Please note Resident Withholding Tax has not been considered in these calculations, as tax rates differ by individual – this means the actual time required to save the deposit via either channel will be longer than the time frame given here.

Why are we doing this when others aren’t?

Squirrel’s mission is to level the playing field for all Kiwi savers and borrowers.

We’ve been advocating for home loan borrowers since 2008 (back when no one else really was) to the tune of $10 billion so far. And now we’re doing the same for our savers, because we reckon the deal you’ve been getting just isn’t good enough.

We reckon, when you’ve been working hard to squirrel away your house savings, you should have more to show for it.

And your parents, your kids, your best mate, even Greg from next door – they deserve better returns on their savings too.

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The opinions expressed in this article should not be taken as financial advice, or a recommendation of any financial product. Squirrel shall not be liable or responsible for any information, omissions, or errors present. Any commentary provided are the personal views of the author and are not necessarily representative of the views and opinions of Squirrel. We recommend seeking professional investment and/or mortgage advice before taking any action.

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