Investment guarantees

A guarantee promises you’ll get your money back if your investment, or the institution you have invested in, fails.

• Crown Retail Deposit Guarantee Scheme
• Other government guaranteed investments
• Capital protected investments

Crown Retail Deposit Guarantee Scheme

This scheme was introduced by the New Zealand government on 12 October 2008, following similar ones introduced in the UK and Australia to improve investor confidence at a time of global financial uncertainty.

The original scheme ran for two years and expired on 12 October 2010.

A smaller Extended Retail Deposit Guarantee Scheme, with different terms and conditions, is running until 31 December 2011.

Institutions in the original scheme are not automatically covered by the extended scheme, and a limited number are taking part in the new scheme. The amount guaranteed has also reduced to $250,000 per investor. For more information read this media release on the Treasury website.
 

Other government guaranteed investments

The New Zealand Government also guarantees money invested in KiwiBonds, including the rate of interest earned.

Because investments with a government guarantee carry a lower risk, they usually offer lower returns and are best suited as an “income” or short-term investment rather than a “growth” or medium-to-long-term investment.

Capital protected investments

Some investments provide an opportunity to access higher-risk markets like shares and commodities while protecting your original capital (the amount you initially invested) when the investment matures.

These schemes typically invest your money in investment structures that may include complex strategies using bonds, options, hedge funds and futures, with the capital guarantee being provided by a bank or other financial institution. Other features include:

• The term of these investments is usually between 6-10 years.
• The capital guarantee is only paid when the investment matures.
• Your return is not usually guaranteed (though some schemes may guarantee a percentage of earnings each year in addition to your capital).
• Fees can vary widely between fund managers.

Unlike a cash investment you don’t receive interest each year and your funds may be invested in a wide variety of areas including shares and futures, so these schemes should be regarded as “growth” rather than “income” investments. You also need to be satisfied with the stability of the financial institution that is providing the guarantee.

Due to the complexity of these schemes, you should get advice from a qualified adviser and make sure you understand all the details.