Who's in Depositor Guarantee Scheme for July 1 launch, and who's not

Wednesday, 4 June 2025

The Depositor Guarantee Scheme is designed to bring New Zealand into line with other developed countries.

Fifteen banks, eight finance companies, three building societies, three credit unions, and no KiwiSaver cash funds ‒ as the start date for the Depositor Guarantee Scheme looms, the list of deposit takers approved for July 1 inclusion has grown.

NZX sharemarket-listed General Finance announced to shareholders on Wednesday that it had been approved for the scheme, which was devised by former finance minister Grant Robertson after a recommendation from the International Monetary Fund.

The scheme will see the first $100,000 of a depositor’s money at one of the approved deposit takers guaranteed by the taxpayer should it run into financial trouble. For a couple with $200,000 in joint accounts, the whole amount would be covered, as each has an individual $100,000 personal limit.

But the deposit insurance, which is common in developed countries, will come at a cost to depositors, as participating banks, building societies, credit unions and finance companies will pay levies to build a deposit guarantee fund over the next 15 years.

General Finance’s managing director, Brent King, told depositors: “We believe the introduction of the Depositor Guarantee Scheme will give the investor market greater confidence.

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“It’s a strong move by the Government to support the deposit taker sector. Investors should be clear when making an investment whether they are investing in a deposit taker, and hence are included in the Depositor Guarantee Scheme or not.”

The scheme is being run by the Reserve Bank Te Pūtea Matua, which has duties to check the financial positions of the deposit takers it lets in.

That requirement was put in place as a result of the last time New Zealand taxpayers guaranteed deposits.

During the Global Financial Crisis of 2007 to 2008, finance minister at the time Sir Michael Cullen introduced a taxpayer-funded deposit guarantee scheme to preserve confidence in the financial system.

South Canterbury Finance cost taxpayers dearly.

That provided a lifeline to some depositors in finance companies whicht had taken on much more risk than was apparent to depositors, including the giant South Canterbury Finance, whose depositors were bailed out to the tune of hundreds of millions of dollars.

King said depositors did not have to do anything for their deposits to qualify for coverage in the scheme. From July 1, deposits at qualifying deposit takers would automatically be covered.

The scheme will cover money held in transaction accounts, savings and notice accounts, and term deposits at qualifying deposit takers.

Brent King, managing director of General Capital, says it’s important New Zealand savers and investors understand which financial institutions are covered by the Depositor Guarantee Scheme, and which are not.

However, money deposited in banks by the likes of KiwiSaver funds would not be covered.

Other managed funds like mortgage trusts were also not included in the scheme. Neither are any foreign currency accounts.

King said the New Zealand scheme differed from schemes overseas. It was designed to pay out money quickly after a collapse, which was better than the Australian equivalent, which had the potential to tie up depositors’ money for many years.

All the big banks are approved for the Deposit Guarantee Scheme.

But it had a lower cover limit compared with Australia’s A$250,000.

The banks so far approved for the scheme are: ASB, ANZ, Bank of Baroda, Bank of China, Bank of India, BNZ, China Construction Bank, Heartland Bank, Industrial and Commercial Bank of China, Kiwibank, Rabobank, SBS, Co-Operative Bank, TSB and Westpac.

The finance companies approved are: Christian Savings, Finance Direct, General Finance, Gold Band Finance, Liberty Financial, Mutual Credit, Welcome, and Xceda Finance.

The credit unions included are: First Credit Union, Police And Families Credit Union and Unity Credit Union.

The building societies approved are: Heretaunga Building Society, Nelson Building Society and Wairarapa Building Society.

The scheme has not been without its critics, some of whom say the scheme blunts market signals.

In its consultation document on the scheme last year, the Reserve Bank said: “We expect some level of deposit rate convergence across the deposit taking industry, as the perceived risk of deposit takers who previously offered higher deposit rates falls in line with other deposit takers due to the protection now available to depositors under the deposit compensation scheme.”

Another effect of the scheme would be to encourage people with larger amounts deposited to split their money between different deposit takers, as only $100,000 per deposit taker would be guaranteed per individual saver, the consultation paper noted.