Non-banks may offer lower rates under deposit insurance scheme

Administered by the Reserve Bank of New Zealand, the Deposit Compensation Scheme (DCS) is a formal, government-backed guarantee of deposits in New Zealand banks and other licensed deposit taking institutions. The scheme, expected to be introduced in July this year, will provide ‘deposit insurance’ for up to $100,000 per depositor, per institution.

Professor David Tripe, director of Gold Band Finance (GBF), says the DCS will be a major change for the New Zealand financial system.

“Most depositors will no longer have to be worried about the quality, and safety in particular, of the institution with which their funds are lodged,” says Professor Tripe.

“Having deposit guarantees of this type is generally good for a country’s financial stability, although the design of some countries’ systems is better for promoting financial stability than others.”