Low Interest Rate Investing
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Investing in a Low Interest Economy; How to Make Your Money Work for You

In 2020, the COVID-driven recession meant that the official cash rate in NZ dropped to 0.25%. This resulted in a raft of economic outcomes including low interest rates. If something like this happens again, how can you still make money from your savings?

When COVID happened, the 0.25% OCR was the lowest that NZ had ever seen. Many Kiwis found that the money sitting in their bank account or on a term deposit was treading water; there was no real return on their funds. If something like this happens again, you can make some changes so that you’re still making money in a low interest economy.

What does a low interest rate mean for your savings?

When interest rates drop, a series of things can happen:

  • The stock market rises as shares become more lucrative than savings
  • The dollar falls
  • The export sector takes a win, due to the lower NZ dollar value
  • Bond market may increase
  • Domestic spending increases as lower interest rates discourage saving
  • Dividend stocks become more popular
  • Bank stocks may fall as their low rates make it harder for them to maintain profit
  • Real asset stocks can rise

In the past, Kiwis could pop their money in a term deposit with their bank, and it would provide a reasonable amount of interest. In 2007, term deposit rates were 8%, so a $500,000 deposit would generate $40,000 annually. Not bad, for a low-risk, no-thought investment. But in 2020, the six month term deposit rate is 1.5%, only making $7,500 annually.

Low interest rates basically mean that your money isn’t working for you; and if that was your sole retirement plan, you need to think about other options and adapt.

Invest in yourself first

While the word ‘investment’ sounds like a lot of work, or something beyond your knowledge, it’s not. There are plenty of options outside of term deposits and you just need to spend some time to figure out what’s best for you.

The very first investment you need to make is with yourself. Spend time improving your knowledge and education around financial matters. While you don’t have to be an expert at everything, you can understand enough to make some choices for your money. Knowing the basics about money and investments gives you insight into your money you wouldn’t have had before. And knowledge is power.

Alternative investment strategies

There are seven general investment options that are accessible to you.

  1. Stocks
  2. Exchange traded funds (ETFs)
  3. Peer to peer lending
  4. Property
  5. Corporate and government bonds
  6. Gold
  7. Infrastructure


This is trading shares on the stock market in order to create income through an increase in stock price and dividends. In a perfect world, you buy shares at a low price, sell them at a high price, and pocket the difference. The problem with stocks and shares is that there are many barriers to investment; you’ll typically need to go through a firm to manage the process for you, you’ll need to understand a lot about shares and companies and the economy, and you’ll need a minimum investment amount. It’s also high risk, with no guarantees. While you can invest in ’blue chip’ companies that are more stable than other options, it’s still prone to fluctuations.

Exchange traded funds (ETFs) and managed funds

ETFs and managed funds are investment funds that are listed on the stock exchange. However, unlike buying stocks, you buy units that are part of a portfolio. This is a mix of shares, bonds and commodities, and are less prone to fluctuations than buying stocks and shares outright.

It’s pretty simple and it allows you to call some of the shots. Do you think gold prices are going to increase? Invest in a gold-based ETF.

Peer to peer lending

If you were always the banker at Monopoly, maybe you saw peer to peer lending in your future. This is where, via a third party you become the bank, loaning your money to someone else.

You get to choose how much money you want to lend, and the rate you wish to do so. Then, the lending platform matches you up with a borrower. It’s usually a car loan, personal, business loan or for debt consolidation.

You may be able to charge up to 20% interest… and you also risk losing your money if the borrower defaults.


The Kiwi classic, you can invest in property. Especially when interest rates are low, you can buy property or land. Then, you can create income through rental payments, or capital increase.

Another option within property market is REITs (real estate investment trusts). These are when you invest into large property assets such as hotels, apartment buildings and commercial properties. These can provide monthly or quarterly dividends.

Corporate and government bonds

Bonds are when you lend money to a large company or the government. They use your money and pay interest to you for the duration of your loan. While you won’t get big bucks from this, it’s considered a solid and safe form of investment.


There’s an extra law of gravity- when the interest rates fall, gold prices go up. Gold is considered a safe investment with less volatility than normal shares and stocks. While there are variations to gold prices and they don’t strictly rise and fall matching the cash rate, gold can offer an interesting investment choice.

You can buy gold stocks, a gold fund, or buy actual gold.

Infrastructure and utilities

If interest rates are low, it makes sense to invest in real tangible assets. These assets include stocks in things like rail, ports, telecommunications, airports and hospitals. While you won’t make huge gains on these stocks, they are solid investment options.

What should you invest in?

You need to adapt. Typically, financial planners suggest that 60% of wealth should be in diversified share portfolios—and the current low interest rates show why.

Investors need to consider the options available, speak to their financial planner, and make choices about where their money is best kept. If you’re close to retirement, or if you have substantial debt, the advice could be very different to others, so it’s worth getting personalised, unique advice for your financial situation.