Prospective Sharesies cash product investors would likely be covered by the impending deposit guarantee scheme despite all assets to be outsourced in a single account.
According to a spokesperson for the group, client cash would be held in a “bare trust in the name of Sharesies Nominee Limited” via an as-yet unnamed AA- rated NZ bank – only the big four Australian-owned institutions or HSBC meet that credit standard.
But the Sharesies savings accounts would still fall under the proposed Deposit Takers Bill, which includes a levy-funded guarantee of $100,000 per client.
“While the Bill is obviously not yet passed, the intention of the current drafting is that customers under this arrangement would have the same cover as they would have if they deposited those funds directly at that registered bank,” the spokesperson said.
The Finance and Expenditure Committee filed its report on the Deposit Takers legislation mid-April ahead of a second reading likely due next month.
Among a number of broad reforms of the Reserve Bank system, the mooted depositor compensation scheme would bring NZ into line with most other jurisdictions.
The draft law states: “If a protected deposit is held under different trusts, each portion of the deposit held under each of those trusts as at the quantification time must be treated as being a separate protected deposit for the purposes of calculating the entitlement to compensation in respect of each trust.”
Sharesies has flagged the savings product would launch with a 4.35 per cent return “subject to change” as the platform diversifies into the asset class du jour amid rising interest rates.
The cash play also mirrors similar trends offshore – notably the Apple hook-up with Goldman Sachs to offer high-yield account (currently 4.15 per cent) to Apple Card holders.
More attractive interest rate deals from money market funds (cash managed funds) have also put some pressure on low-yielding US bank deposits.
In the wake of the collapse of the Silicon Valley Bank in March, for example, a record US$304 billion flowed into money market funds as savers sought refuge – although flows have eased since.
“But money-market funds had been raking in cash even before the banking turmoil thanks to the high yields they offered, following the Federal Reserve’s interest-rate increases over the past year,” Markets Insider reported.
US deposits are guaranteed up to US$250,000 per account (although the government regularly extends coverage in a crisis) but the recent bank failures and ease of shifting cash online has seen significant outflows from some institutions.
For example, Charles Schwab – which operates as a broker and bank – reported deposit outflows of more than US$325 billion over the 12 months to the end of March, equating to a 30 per cent drop in cash holdings as clients fled to higher interest offers.
Sharesies plans to go live with no-fees savings product this month in a bid to boost income (through shared margins) following a lull in retail equities trading activity.
Co-founder, Brooke Roberts, said in a statement at the time: “It’s always been part of the Sharesies’ kaupapa to ensure we provide options beyond investing, and that these relate to day-to-day financial decisions.”
The platform has downsized this year, cutting over a quarter of staff to rein-in ballooning costs.
Meanwhile, the Sharesies KiwiSaver scheme, released in beta-form last December, is on track to go live proper this quarter, according to the spokesperson, with the current external fund menu expected to be supplemented by direct share options.