Compound returns and KiwiSaver, explained

26 January 2024

Time heals all, they say. But did you know it can also grow your KiwiSaver balance, thanks to compound returns? Here’s how they work – and how you can harness this savings superpower.

How KiwiSaver works to grow your balance

First up, a quick recap on some nifty ways to grow your KiwiSaver account. Your contributions play a big role, of course. Then there are your employer contributions (if you’re contributing from your pay, your employer usually has to contribute at least 3% of your before-tax pay). And then there’s the Government contribution. If you’re eligible, the Government will contribute 50 cents for every $1 you contribute, up to a maximum of a $521.43 each year. 

Employer and Government contributions on top of your own contributions, are just some of the reasons why your KiwiSaver savings can grow so well. But there’s another reason that’s not widely understood: compounding returns. 

The lowdown on compound returns

Ever come across the term ‘compound interest’? With KiwiSaver, you get compound returns instead  – but it’s pretty much the same concept. These returns can include dividends and capital gains on your investment (as well as interest, if your fund includes assets like cash or fixed interest, e.g. bonds). 

Here’s how compound interest works. Unlike simple interest (where you only earn interest on your initial balance), compound interest has you earning interest on both the money you’ve saved and your interest. Both sets of interest get added to your overall balance, which means next time the interest is calculated, you earn even more. And so it goes. 

With KiwiSaver, it’s the same deal. Your returns are re-invested, growing your overall investment, and earning you further returns over time. 

Example of how compounding returns work ($10,000 earning 5.5% p.a. over 30 years)

Disclaimer: graph is for the purpose of illustrating the concept of compounding returns only, and does not account for inflation or any possible fees, taxes, contributions or withdrawals. Returns are not guaranteed, will depend on many factors and may be negative as well as positive.

Horizontal axis shows years, starting at zero and ending at 30. 

Vertical axis is labelled 'Investment value' and shows values from zero to $50,000. 

Lines for the two investment examples start at $10,000. 

A line marked ‘Non-compounding’ finishes at $26,500 after trending steadily up. 

A line marked ‘Compounding’ finishes at $49,840. It trends upwards, with significant acceleration.  

Making the most of compound returns

Reckon those small contributions aren’t making much of a difference? Think again. In the long-run, your regular KiwiSaver contributions help the snowball effect of compounding returns – and these returns can really impact the size of your KiwiSaver balance at retirement, or when you’re ready to buy your first home.

Slow and steady is the name of the game. Start as early as you can, keep up your regular contributions, leave your money in your KiwiSaver account as long as possible – and watch that snowball grow. 

Important information

ANZ New Zealand Investments Limited (‘ANZ Investments’) is the issuer and manager of the OneAnswer KiwiSaver Scheme (the 'scheme'). Important information is available under terms and conditions. Download the guide and product disclosure statement from our documents and forms page.

ANZ Investments is not an authorised deposit taking institution (ADI) under Australian law and investments in the scheme aren’t deposits in or liabilities of ANZ Bank New Zealand Limited, Australia and New Zealand Banking Group Limited, or their subsidiaries (together ‘ANZ Group’). ANZ Group doesn’t stand behind or guarantee ANZ Investments. Investments in the schemes are subject to investment risk, including possible delays in repayment, and loss of income and principal invested. ANZ Group won’t be liable to you for the capital value or performance of your investment.

Past performance does not indicate future performance. The actual performance any given investor realises will depend on many things, is not guaranteed and may be negative as well as positive.

This material is for information purposes only. We recommend seeking financial advice about your situation and goals before getting a financial product. To talk to one of our team at ANZ, please call 0800 736 034, or for more information about ANZ’s financial advice service or to view our financial advice provider disclosure statement see Investor information.