We like to keep things as simple and transparent as possible when it comes to how we manage your investments—whether it’s the liquidity features of our products, how we deliver solid returns or manage the flow of loans.
With that said, here’s the latest on what’s been happening with Squirrel’s On-call Account, Term Investments, Monthly Income Fund, and where we see interest rates and loan supply heading in the coming weeks.
Secondary market and liquidity
In my mind, there are three golden rules in banking:
- You need a dollar before you can lend a dollar;
- The person giving you the dollar wants it back one day; and
- Trust is everything.
Rule 2 is all about liquidity. The way our investments work is slightly different to what you get with New Zealand banks, but our goal is to ensure that you can access your funds as easily as possible when you need them.
Here’s how our liquidity features across each of our investment options:
Squirrel On-Call Account: high liquidity, no fees.
Squirrel’s On-call Account is designed for strong accessibility:
- Funds back to your main bank account typically within two hours, 7 days a week between 9am and 11pm. Speed of withdrawal is dependent on the banks’ payment systems operating as they should (which they do, for the most part).
- Funds are held in simple interest-bearing accounts (equivalent to a standard savings account) with two of NZ’s largest AA- rated banks—so your money is available on demand.
- There are no associated fees or penalties for making a withdrawal from your Squirrel On-call Account.
In other words, we’ve designed it to be what we believe an On-Call Account should be – simple, flexible and reliable.
Squirrel Term Investments: a secondary market advantage
With our Term Investments, you earn higher returns in exchange for committing your money for a specific term.
We understand that circumstances can change, however—which is why we’ve built our secondary market, to give you the option of listing your investment/s for sale should you need your money out before the term ends.
We don’t guarantee that your investment will sell, however in the nine years since we launched our secondary market, every investment listed has sold.
Here’s how it works:
- Speed of sale: most investments sell within a few days, and at it’s fastest in less than 60 seconds. Depending on things like the level of investor demand, and the credit status of the underlying loan, it can sometimes take significantly longer.
- Performance history: If the loan you’re invested in has experienced a credit event (like missing a payment, going into arrears or past its term), it might take a little longer to sell. That’s because we match your sale with potential buyers who can choose to buy or decline the offer. Market conditions also have an impact, although even during all the uncertainty of the onset of Covid-19, the longest sale took just over four weeks. We keep things transparent by publishing average “time to sell” on our Performance page. Over the past six months, the average time to sell has been measurable in hours, with most investments changing hands in less than a minute. That’s pretty liquid, but of course, it can fluctuate based on market conditions.
- Costs: Selling through the secondary market is free, with no penalties on your interest rate. We think that a bit better than the way a bank treats its term investment customers.
Pro tip: If you know you need funds by a specific date, we recommend listing your investment for sale about four weeks in advance for peace of mind. Better to have it sooner than not have it available when you need it, and you can earn our great On-call interest rate until you need it.
Squirrel Monthly Income Fund: flexible, but plan ahead
Liquidity for the Monthly Income Fund has similar things at play:
- Withdrawal time: redemptions are paid out as soon as funds are available, typically within 7 days, though it could take up to 30 days, as per the liquidity terms for the Fund. If you have a certain date in mind by which you need the funds, you’ll need to make the redemption request 30 days out.
- Sources of liquidity: withdrawals are supported by loan repayments, maturing term investments, new investor inflows and sales via the secondary market.
- Fees for withdrawal: none.
Overall, there isn’t too much difference between Squirrel’s term investments and our Monthly Income Fund from a liquidity perspective. They’re both impacted in the same way by the same things. Planning ahead ensures you have access to your money when you need it.
Interest rates: the road ahead
The next OCR announcement on 19 February 2025 is expected to bring a 0.50% cut.
While it looks like inflation is pretty well under control at present, and the economy has steadied, growth remains elusive. Current interest rates are still restrictive, and further reductions are needed to stimulate the economy.
What does this mean for investors?
- Expect a reduction in On-call Account interest rates following the next OCR announcement.
- Term investment rates will be reassessed post-OCR. Our rates typically outperform bank 1-year term investments by a margin of 1% – 2%.
Loan supply: meeting demand
Home Loan and Construction Loan Term Investments: low settlement volumes during January have led to brief queues (up to 7 days), but these should clear this week with a wave of settlements expected.
Personal Loan Term Investments: Demand significantly outweighs supply, resulting in long wait times. We recommend exploring the Monthly Income Fund or other Term Investments for better returns without the delays. For perspective, we arranged $4.2m of new investments and secondary market sales last year and there is currently around $4m of orders waiting (that’s a years’ worth at current run rate).