Mary Holm: It pays to check the rules first

On the bank transfers item in the column two weeks ago, I am also a Westpac customer. I have had no real problems with Westpac. However, as a frequent user of online banking I have found a few things that may be worth noting.

On any given day, pre-arranged debits come out (usually just after 9pm) before pre-programmed credits go in (usually after midnight).

For term deposits, watch the bank's adjustment of maturity date. For example, a 180-day deposit that matures on a weekend will usually get a much lower rate of interest for 178 or 179 days. A 181 or 182-day deposit will usually get the 180-day interest rate.

If a transfer is made to an interest-bearing savings account, the funds need to be transferred before 9pm to attract the interest for that day. Do it after 9pm and you lose a day's interest.

I am sure there are many other little "tricks" in the banking system. The problem is that bank staff don't always know. The detail may be hidden in the fine print, so "buyer beware".

Gosh, you're observant. But what you've noticed is far from universal. When I asked the big banks how their policies worked, they weren't just different for different banks, but often for different types of payments or accounts within a bank.

So this is more a guide than a comprehensive list. At least if everyone is aware of what their bank might do, they can inquire about it.

On your first point, in some situations, if a bank tries to debit money from your account and there isn't enough there, the payment will "fail". In other situations, the bank will try again later - to see if more money has come in.

Sometimes, though, a bank will make the payment even when there isn't enough in the account. If your account goes into the red just briefly, most banks won't charge fees or interest.

However, BNZ says, "Automatic payments are not checked for funds before processing, so if they overdraw an account the customer will be charged interest, and the automatic payment may be dishonoured the next business day".

To avoid problems, says Kiwibank, "We always advise customers to set their payments to leave their accounts the day after credits are received". Other banks echo that.

On your second point, I said to the banks, "Say you have a 180-day term deposit that matures on a Sunday. If the maturity date defaults to - or is switched to - the Friday before a weekend, do you get the same interest rate as on a full 180-day deposit?"

ANZ and ASB said they don't adjust maturity dates that fall on non-business days - even though you might not get access to the money that day, as explained in this column two weeks ago. So of course the interest rate won't change.

BNZ said it doesn't automatically adjust the maturity date, but the customer could do so, and if they chose a 179-day term, they would get the interest rate for 150-179 days.

"However, we do advertise these rates as ranges, so it's clear to the customer that they'll get the rate that applies for 179 days, not 180 days.

Kiwibank's default position is to extend the term to the following Monday, but a customer can choose the previous Friday. In either case, they get the 180-day rate.

National rolls a weekend maturity date forward to the next business day. The interest rate is unchanged.

At Westpac, if a customer sets up a term deposit online and the maturity falls on a weekend, the customer chooses an earlier or later maturity date.

"If they choose the 181-day option they will get the six-month rate, if they choose the 179-day option they will receive the five-month rate. But the customer will be asked to accept the rate."

Several banks - ANZ, ASB, Kiwibank and National - mail a confirmation letter soon after you set up a term deposit, listing the rate, term and maturity date.

At ANZ, Kiwibank and National, you have a week from the start of the deposit to cancel or change the term or amount. Not so at ASB. "However, depending on the circumstances, we are always open to discussion," says a spokesperson.

BNZ says it may change term deposits "on a case-by-case basis. We do not have a specific time-frame written into policy regarding changes, but we do try to look after our customers."

Westpac doesn't send a letter, but "we do have a seven-day window to cancel or change," says a spokesperson. "With online banking the customer is asked to accept the rate, and is given the option of accessing a PDF with their interest rate on it."

The main message here: be aware that changing a maturity date by a few days can change your interest rate.

Moving on to your third point, sometimes there is no cut-off time for getting interest that day; sometimes it depends on the type of payment or account. Also relevant is whether the money is moving within a bank or to a different bank.

But who cares anyway? Even on $100,000, one day's interest at 3 per cent after tax amounts to about $8.

While I was at it, I asked the banks a related question: If you make an online payment, does it need to be before a certain time for that money to go to the payee by midnight on that date?

Once again, answers varied. The earliest cut-off times for each bank are: ANZ 10.30 pm, ASB 9.30 pm, BNZ 11.45 pm, Kiwibank 10pm, National 8pm, Westpac 10pm. In some cases, there are earlier times for credit card payments.

I have a particular interest in this, as I recently made a GST payment online close to midnight on the deadline day. Soon after, Inland Revenue wrote that my payment was a day late, and charged me a couple of dollars interest.

Mercifully, they then wrote it off as being too small to bother with. But I won't do that again. I felt like I had been told to sit in the corner for half an hour.

Keeping gold safe

Earlier this year I bought some gold bullion. Following the Goldcorp fiasco there was no way I was going to leave it with the suppliers. I approached ASB, BNZ, Kiwibank and Westpac regarding safe deposit boxes.

All advised me that they no longer offered such services. I eventually rented a box at Commonwealth Vault but only because we were going away for some time. At the conclusion of the rental I will bring the bullion home!

It seems you asked the wrong Westpac branch. "We offer safe deposit boxes at our Safe Deposit Centre at Queen St, Auckland," says a spokesperson.

You're right about the other banks. ANZ, ASB, BNZ, Kiwibank and National all said they don't - or no longer - offer this service.

Says a spokesperson for ANZ and National, "We have recently made the decision not to accept any new lodgements."

Gilt-edged investing?

Investment advisers are recommending buying gold. They see it as a hedge against inflation and the ills of the world financial situation. I cannot agree.

Gold is a commodity, and not a very easy one to store or transport. Investment in any commodity is a gamble; no one can predict its future value. Gold has a very high profile, but it's a commodity nonetheless.

If you invest in the commodity market, why only choose gold? It makes economic sense to spread your risk. As no single commodity is likely to match CPI movement, it's better to broaden your investment across many commodities.

Now, why buy gold at today's high price? Shouldn't you be selling it now?

There's a mathematical term called "regression to the mean". If you look at any investment type, they have always regressed to the mean rate of inflation over time. It's a mathematical certainty. Thus, if gold regresses to the mean over time, it will likely regress to US$338 per ounce, being the average price of gold, in 2010 dollars, since 1968.

Asking people to buy gold as an investment because, in 1980, it peaked at US$2235 in 2010 dollars - and using that as evidence that it will soon go back to that level - would be calling on an unknown statistical phenomenon called "regression to the peak".

It would be the dream of every commodity salesman that "regression to the peak" be believed by investors. Nothing in history has regressed to the peak - it's a nonsense. If you buy gold today, and its price falls over the coming years, you have lost money, and the gold has generated zero income. Gold never generates income. It just sits there and you pay to have it stored and insured - madness.

Who invested in gold 10 years ago and is selling their holding today? Not many. They're too busy telling everyone about the "profit" they're making. Yeah, right. Could somebody remind them there's no profit generated until you sell the damn stuff!

Well put. If you're buying gold for its beauty, it certainly has something over pork bellies. But if it's just about what happens to its value, then a diversified portfolio of commodities would be considerably less risky.

"Regression to the mean" will sound horribly complicated to some readers. And strictly speaking, says a statistician friend, the term shouldn't be applied to long-term price trends. But that's rather technical, and gets in the way of your message - which is a good one.

If you look at a series of prices over time, they fluctuate around their long-term trend line. If the current price is higher than the trend, chances are generally more than 50:50 that the next price will be lower - as it regresses, or goes back, towards the trend line. If a price is lower than the trend, the chances are that the next price will be higher - again moving back towards the trend.

I don't agree that investments always regress to the rate of inflation. Share and property prices, for instance, tend to grow faster than inflation. But they certainly tend to stay within cooee of inflation over the long term.

Your main point seems to be that, given the gold price is now well above its average over recent decades, it's more likely to fall than to rise in the near future.

Note, though, that I said only "more likely". Gold might well rise further for a while. Regression to the mean can take a long time. Hedging my bets? You betcha! But I would hate to see anyone count on further gold price rises.

Mary Holm is a freelance journalist, part-time university lecturer, consumer representative on the board of the Banking Ombudsman Scheme, seminar presenter and bestselling author on personal finance. Her website is www.maryholm.com. Her advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.

Want to learn more about your home finances?
Send questions to mary@maryholm.com or Money Column, Business Herald, PO Box 32, Auckland