Saving for your 1st Home? Should you increase your KiwiSaver contribution or start a savings account?

We asked Authorised Financial Advisor Gary Warner of True North Investments this question – here’s what Gary advises;

If I was answering this question on a sheer likely investment performance basis there would be no real definitive answer as nobody can say for sure which investment-your KiwiSaver or your savings account- is going to perform best over a relatively short period (assuming that saving for your first house is a five years or less process).

I am also going to assume that your employer would not be increasing their contribution if you increased yours (if they did then the obvious answer would be to increase your KiwiSaver as you can use both your contributions and your employers contributions when making a withdrawal for your first home).

Thus, the general advice I would give would be in regard to the other very important aspect when saving- the aspect of discipline. If you put the extra money into a savings account the temptation to occasionally dip into it when times are a bit tough, or to not make a saving deposit that month when something unexpected comes up, can be too strong to resist, this is very counterproductive especially when making a commitment to save for you own home.  However, if you increase your contributions to KiwiSaver two things automatically occur- the first aspect- it gets taken straight from your wages before you have it in your hands. And the second aspect being the fact that once its in KiwiSaver you are unable to access it until you are 65, except in a few special cases such as proven hardship, permanent emigration, and of course withdrawing funds for your first home purchase.

These two aspects of KiwiSaver mentioned above are very conducive to a committed savings plan and are the reason that I would personally choose to increase KiwiSaver contributions rather than attempting to put extra into a savings account.

Need some KiwiSaver advice? Call Gary Warner of True North Investments on 027968-5285 or visit their website