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Depositor Compensation Scheme (DCS) Explained

Our complete guide to the DCS explains how automatic protection (up to $100,000 per bank) works. We explain what's covered, which institutions qualify, outline real examples, and share strategies to maximise your protection.
Updated 13 July 2025

​Summary
  • From 1 July 2025, if your bank, credit union, building society, or (selected) finance company fails, you'll get up to $100,000 of your money back - guaranteed.
  • This protection is automatic, free, and covers most everyday bank accounts and term deposits. But there are important limits and exclusions you need to understand.
  • The DCS provides valuable protection but isn't a complete safety net. You get $100,000 coverage per institution - no more, no less.
  • Your KiwiSaver isn't covered. And if you have significant wealth, you may want to consider actively managing your deposit spreading strategy.

Our View: The Depositor Compensation Scheme (DCS) is a welcome and important safeguard, even though the likelihood of a major New Zealand bank failing remains very low. This is due to the Reserve Bank of New Zealand's strict oversight, high capital requirements, and strong risk management frameworks. Furthermore:
  • Credit unions are, arguably, low risk for investors, thanks to their conservative lending practices and member-first business models.
  • Where the DCS adds real value is in protecting depositors with (selected) finance companies, which historically have posed far greater risk. Finance companies tend to engage in higher-risk lending and operate with lighter regulatory oversight, making the DCS especially relevant.

As a background, MoneyHub has never included finance company term deposit offers in our comparison list because we believe the risks they pose to investors are disproportionately high relative to the returns offered. We may revise this in due course, but for now, we prefer to focus on listing term deposits that are issued by New Zealand banks.

However, we see the DCS as a positive step forward. It provides everyday New Zealanders with peace of mind by guaranteeing up to $100,000 per eligible institution, and is especially meaningful for those with deposits in smaller or non-bank financial institutions.

To explain what you need to know, our guide covers:
Know This First: No registration is required for DCS protection - it's automatic for eligible accounts - you can see who offers DCS coverage on the RBNZ website.

​Disclaimer: This guide provides general information only. While we've made every effort to ensure accuracy, DCS rules are complex and subject to change. Always verify current deposit takers with the RBNZ.

What is the Depositor Compensation Scheme?

The DCS is New Zealand's answer to deposit insurance - something most developed countries have had for years. It's a government-mandated scheme that protects your deposits if a financial institution fails.

Why is it available now? There are many reasons:
  • International pressure: The IMF recommended NZ implement deposit insurance back in 2017, per this summary from law firm Buddle Findlay.
  • Global Financial Crisis (GFC) lessons: During 2008-2010, taxpayers bailed out some finance companies under a 2008-2011 Crown Retail Deposit Guarantee Scheme, which cost around $2 billion but didn't extend beyond 2011.
  • Global standards: Over 110 countries have similar schemes - Australia (A$250,000), the UK (£85,000) and Singapore (S$100,000) are all examples.
  • Financial stability: A deposit scheme prevents bank runs and maintains confidence should a bank or deposit taker get into trouble. ​

How is the DCS Funded?

Unlike the GFC bailouts, this isn't taxpayer-funded (mostly). Deposit takers pay levies into a fund managed by the Reserve Bank, as outlined by this July 2025 interest.co.nz article which also confirmed the target is to build a fund equal to 0.80% of all protected deposits over 20 years.

How Much Protection Does the DCS Offer?

The Core Limit: $100,000 per depositor, per deposit taker

Think of it this way - you get one $100,000 "protection bucket" at each bank or finance company. That's it. This simple rule is the most important thing to understand about the DCS.

To make this relatable, let's use an example to explain "Per Depositor":

You are one depositor regardless of how many accounts you have:
  • Matthew McAllan with 5 accounts at ANZ = 1 depositor = $100,000 total protection
  • Matthew McAllan Ltd (his company) at ANZ = different depositor = another $100,000
  • Matt and Claire McAllan (joint account) = Matthew counts as one depositor with his share

"Per Deposit Taker" Explained
Each institution is completely separate. For example, if you have $300,000 invested across three banks, your protection limits are:
  • $100,000 at ANZ
  • Plus $100,000 at BNZ
  • Plus $100,000 at Kiwibank

This means you have $300,000 of total protection (if spread across three banks)

Warning: There is arguably a "total across all accounts" trap or misunderstanding where people think that if a single balance is below $100,000, it's protected. However, everything held with the deposit taker needs to be added up.

For example, Dave banks with the BNZ and has the following accounts:
  • Everyday account: $5,000
  • Savings account: $25,000
  • Term deposit #1: $50,000
  • Term deposit #2: $30,000
  • Credit card (in credit): $500
  • Revolving mortgage (in credit): $15,000
  • Total at BNZ: $125,500
  • Protected: $100,000
  • Unprotected: $25,500

Know This: It doesn't matter that these are different accounts or different types - they all count toward Dave's single $100,000 limit at BNZ.

Common misunderstandings explained:
  • Incorrect: "I have $100,000 in savings and $100,000 in term deposits at ASB, so $200,000 is protected" - This is incorrect, your limit is $100,000.
  • Correct: "I have $200,000 total at ASB, so only $100,000 is protected. I'd lose $100,000 if ASB failed."
  • Incorrect: "Each of my accounts is protected up to $100,000"
  • Correct "All my accounts at one bank share a single $100,000 limit"
  • Incorrect: "My term deposits are separately protected from my savings"
  • Correct: "Every dollar at that bank counts toward my one limit"​

How can I limit my risk if I have over $100,000?

​This is best explained with our "Safety Deposit Box" analogy. Imagine each bank gives you one safety deposit box that holds exactly $100,000:
  • Put $50,000 in? You're fully protected
  • Put $100,000 in? You're fully protected
  • Put $150,000 in? Only $100,000 fits, you lose $50,000

If you want more protection, you'll need more safety deposit boxes and therefore need to use different (protected) deposit takers such as other banks, credit unions and finance companies.

Coverage Breakdown by Account Holder Type

Account Holder Type
Coverage Limit
How It Works
​Individual
$100,000 per institution
​All accounts in your name combined
​Joint Account
$100,000 per person
​Split equally between account holders
​Sole Trader
$100,000 total
Business and personal accounts combined
Limited Company
$100,000
Separate from personal accounts
Trust
$100,000 per trust
Each trust is a separate depositor
Partnership
Depends on structure
​May be per partner or per partnership

What's Covered vs What's Not

​The Depositor Compensation Scheme (DCS) is, as its name suggests, focused on deposits. It does not cover losses in KiwiSaver funds, investment funds, shares and other investments, as we outline below.

The purpose of the DCS is to provide up to $100,000 of protection should a bank or other deposit taker fail - a rare event, but one that will be significant. The DCS does not exist to guarantee investments. 

Covered Deposits - The Complete List

Transaction Accounts
Savings Products
Investment Products
​Credit Products (Positive Balances Only)

What's Not Covered - The Critical Exclusions

Investment Products
Foreign Currency
Specific Entities
  • Government departments - IRD, MBIE, Treasury, etc, are considered sophisticated enough to assess risk themselves and won't be covered
  • Local authorities - City councils, regional councils, district health boards - they have their own treasury management
  • Foreign governments - Any overseas government agencies or sovereign wealth funds
  • Other financial institutions - Banks can't claim on deposits at other banks; insurance companies and fund managers are also excluded

Other Exclusions
  • Deposits used as security - Money held as collateral for a loan, guarantee or other obligation (e.g., rental bonds held by banks)
  • Structured products with derivatives - Complex investments that combine deposits with options, swaps or other derivatives, even if called "deposits"
  • Subordinated debt instruments - Investments where you've agreed to be paid back after other creditors if the bank fails (these often pay higher interest for this extra risk)

Real-World DCS Coverage Examples

We outline typical scenarios below to explain how the DCS protects everyday New Zealanders.

​Scenario 1: The Typical Saver - Sarah - Young Professional
  • Transaction account at ANZ: $5,000
  • Savings account at ANZ: $35,000
  • KiwiSaver at ANZ: $25,000

If ANZ fails:
  • Protected: $40,000 (transaction and savings)
  • Not protected: $25,000 (KiwiSaver has separate protections)

Scenario 2: The Retiree - John - Recently Retired
  • Term deposit at Kiwibank: $180,000
  • Transaction account at Kiwibank: $8,000
  • Savings at Heartland Bank: $60,000

If Kiwibank fails:
  • Protected: $100,000 (maximum limit)
  • Unprotected: $88,000

If Heartland fails:
  • Protected: $60,000 (under the limit)

Scenario 3: The Business Owner - Lisa - Owns "Lisa's Café Ltd"
  • Personal savings at BNZ: $45,000
  • Business account (Ltd company) at BNZ: $120,000
  • Personal term deposit at BNZ: $70,000

If BNZ fails:
  • Lisa personally: $100,000 protected (loses $15,000)
  • Lisa's Café Ltd: $100,000 protected (loses $20,000)

Scenario 4: The Property Investor - Mark & Emma - Joint Property Portfolio
  • Joint savings at ASB: $250,000
  • Mark's personal account at ASB: $30,000
  • Emma's personal account at ASB: $25,000
  • Investment property account at ASB: $40,000

If ASB fails:
  • Joint account: Each gets $125,000 attributed
  • Mark's total: $125,000 + $30,000 = $155,000 (protected: $100,000)
  • Emma's total: $125,000 + $25,000 = $150,000 (protected: $100,000)

Scenario 5: The Trust Structure - The Smith Family Trust
  • Trust term deposits at Westpac: $200,000
  • John Smith (trustee) personal account at Westpac: $50,000
  • Mary Smith (trustee) personal account at Westpac: $80,000

​If Westpac fails:
  • Trust: $100,000 protected (loses $100,000)
  • John: $50,000 protected
  • Mary: $80,000 protected

Which Deposit Takers Are Covered by the DCS (And Which Aren't?)

​Currently Approved (as of July 2025)

Major Banks
International Banks
Building Societies
Credit Unions
Finance Companies

Notable Exclusions - Who's Not in the DCS

Several finance companies that take deposits are not yet approved for DCS:
  • Some smaller regional finance companies
  • Newer finance companies are still going through the approval process
  • Companies that don't meet RBNZ requirements

Other Financial Services Not Covered include:
  • Mortgage funds/trusts (e.g., mortgage aggregator schemes)
  • Peer-to-peer platforms (Harmoney, Squirrel Money, etc.)
  • Non-bank lenders that don't take deposits
  • Investment platforms (Sharesies, Hatch, etc.)
  • Cryptocurrency platforms
  • Contributory mortgage schemes

Warning: If a deposit taker:
  • Isn't on the RBNZ approved list
  • Offers unusually high interest rates
  • Can't clearly confirm DCS coverage
  • Is vague about their regulatory status

​Our suggestion: Check the RBNZ website for the current list of DCS deposit takers before making large deposits. Too many New Zealanders have been caught out with bad investments, and the existence of a DCS will, sadly, not stop this from happening in the future. ​

The True Cost - Levies and Impact

The scheme aims to build a fund equal to 0.8% of protected deposits over 20 years. This is a huge amount of money, and annual levy estimates include:
  • Major banks: Millions per year
  • Regional banks: Hundreds of thousands
  • Credit unions and building societies: Hundreds of thousands
  • Finance companies: Based on risk rating

The levies aren't equal - riskier institutions pay more:
  1. Base rate: All deposit takers pay
  2. Risk premium: Higher-risk institutions pay extra
  3. Size adjustment: Larger institutions may pay proportionally less

Know This: Will the DCS affect the interest rates I earn on deposits?
It's likely, particularly if you use finance companies. Here's what experts predict:
  • Major banks: Rates may drop 0.1-0.2% (minimal impact)
  • Finance companies: Rates likely to drop 1-1.5% (significant impact)

Generally, before the DCS, finance companies typically paid about 2% more than banks to compensate for higher risk. With deposit protection, that "risk premium" could shrink to around 0.5%, due to
  1. Less risk means less reward: With deposits now protected, DCS-covered finance companies arguably don't need to offer high rates to attract depositors
  2. Levy costs: Finance companies will likely pay higher DCS levies than banks, putting pressure on their margins
  3. Increased competition: Safer small players can now compete more directly with big banks

When will I see these rate changes?
Some finance companies have already started lowering rates in anticipation. Expect most changes within 6-12 months of the DCS launch as the market adjusts. And, while deposit takers pay the levies, costs flow through to more than just those investing in finance companies:
  1. All depositors: Slightly lower interest rates can be expected
  2. Borrowers: Slightly higher lending rates can be expected

Overall, we expect investors to earn 0.1% to 2% p.a. less on deposits, especially at finance companies, had there been no DCS in place. ​

How DCS Payouts Actually Work

When a deposit taker such as a bank or credit union fails, the Reserve Bank will take action and ensure the DCS protects borrowers. We outline how this is designed to work below, although the exact procedure may vary if/when a collapse happens.

The Timeline - From Failure to Your Money Back

Day 1 - Failure Announced
  • The Reserve Bank takes control of the failed institution - they have done this before, with the collapse of South Canterbury Finance being an example
  • All accounts are immediately frozen (you can't access your money)
  • The RBNZ will begin assessing the situation

Days 2-10 - Behind the Scenes
  • Customer records are verified and eligible deposits are calculated
  • Payout amounts determined for each depositor
  • Payment methods confirmed

Days 10+ - Money Starts Flowing
  • Target: Payouts are likely to begin within 10 working days (depending on the complexity)
  • Reality: Based on overseas experience, depositors can expect to receive their money in 10-20+ working days
  • Your money: You'll receive up to $100,000 via direct transfer to another NZ bank account

Please be aware that the risk of a bank or credit union collapsing is low, although finance companies have a higher risk.

What happens to money over $100,000?

If you have more than $100,000 at a failed deposit taker, there is good and bad news.
  • The Good News: You get your first $100,000 quickly through DCS
  • The Bad News: For anything over $100,000, you become an "unsecured creditor"

What does being an unsecured creditor mean?
  • You join the queue with other creditors
  • Wait for the liquidation process (months to years)
  • Receive a percentage of what you're owed based on recovered assets
  • Typical recovery rates: 0-80% (varies depending on why the institution failed)
  • Timeline: Could take 2-5 years to see any money

Example: You have $250,000 at a finance company
  • First $100,000: Paid within weeks via DCS
  • Remaining $150,000: You might get back $75,000 (50% recovery) after 3 years, or nothing at all, or something less like 10%.

What if the DCS fund runs dry?

​The DCS fund might not have enough money if multiple institutions fail or one very large one does. Here's what happens:
  1. Government steps in with a loan (not a bailout)
  2. You still get paid - no delays to you receiving up to $100,000 per deposit taker
  3. Levies increase on surviving deposit takers to repay the government
  4. Taxpayers are protected - the industry pays back every dollar (in theory)

Our View: This "Crown backstop", as outlined in this June 2025 interest.co.nz article, means you'll get your money even in a catastrophic scenario, but the financial sector (not taxpayers) ultimately foots the bill.

Key Actions To Consider Taking Now

​The DCS, effective since July 1, 2025, automatically protects eligible deposits up to $100,000 per depositor, per licensed deposit taker. To ensure your funds are secure and maximise your protection, we suggest considering these steps:
  • Verify DCS-protected accounts: Confirm with your deposit taker (bank, credit union, building society, or finance company) that your accounts are DCS-protected. Check their website for a list of covered products; covered accounts typically include transaction, savings, notice, and term deposit accounts in NZD.
  • Review account balances: Ensure your total deposits per deposit taker do not exceed $100,000 if you want full DCS protection. If you have more than $100,000, consider spreading funds across multiple licensed deposit takers to maximise coverage. For joint accounts, each depositor is covered up to $100,000.
  • Update contact information: Keep your contact details (e.g., phone number, email, and address) current with your deposit taker. In the unlikely event of a failure, the RBNZ needs accurate information to process DCS payouts quickly.
  • Understand ineligible products: Be aware that investments like KiwiSaver, bonds, shares, managed funds, and foreign currency accounts are not covered by the DCS. Review your portfolio if unsure about coverage.
  • Stay informed: Regularly check the RBNZ's DCS website for updates on covered deposit takers and scheme details. This is especially important if you hold accounts with finance companies.​

Frequently Asked Questions

1) Coverage Basics FAQs

Do I need to register or apply for DCS coverage?
No. Coverage is completely automatic for eligible deposits from 1 July 2025. There's no application, no forms, no fees. You can see who offers DCS coverage on the RBNZ-approved list.

What about my mortgage offset account?
If it has a positive balance, it's covered like any other transaction account. If it's in debit (normal for offset), there's nothing to protect.

What if I die? Is my estate covered?
Yes, estates are treated as separate depositors with their own $100,000 limit until distribution.

I have power of attorney for my elderly mother. How does coverage work?
Your mother's accounts are covered under her $100,000 limit, completely separate from yours. The power of attorney doesn't affect this.

My business has multiple trading names and bank accounts. What's my limit?
It depends on the legal structure. One limited company = one $100,000 limit regardless of trading names. Separate companies each get $100,000.

2) Foreign Currency and Overseas FAQs

Is my USD balance in an ANZ foreign currency account covered?
No - no foreign currency accounts are protected, even at NZ banks.

I'm a non-resident with NZ bank accounts. Am I covered?
Yes, if you're an individual (not a foreign government). Residency doesn't matter.

3) Timing and Transitions FAQs

I have a 5-year term deposit maturing in 2027. Is it covered?
Yes, all existing eligible deposits are automatically covered from 1 July 2025.

What if I opened an account on 30 June 2025?
It's covered from 1 July 2025, like all other eligible accounts.

Can coverage rules change?
Yes, the government reviews the scheme every 5 years. The $100,000 limit could increase (or theoretically decrease).

Will I be taxed on a DCS payout?
The payout itself isn't taxable (it's your money). But you may owe tax on any interest earned before the failure.

What if I owe the failed bank money (mortgage/loan)?
You still owe it. Debts aren't cancelled. In liquidation, debts might be sold to another lender.

How do I know if my bank is in trouble?
Watch for:
  • Credit rating downgrades - we list current credit ratings here
  • Sudden executive departures
  • Unusual deposit rate increases
  • Media reports of problems
  • RBNZ public statements

Can I get my money out if I'm worried?
Yes, unless RBNZ has frozen accounts, you can terminate a term deposit at any time (with a penalty) or give notice on a Notice Saver, etc.

What happened to finance companies that aren't approved for DCS? They can still operate and take deposits, but deposits aren't protected. Invest at your own risk.

Beyond KiwiSaver, managed funds, and cash funds, what are the scenarios not covered by the DCS?
There are key situations where the scheme does not apply:
  • You're scammed: The DCS does not cover losses due to fraud or scams by third parties. If your account is compromised due to phishing, identity theft, or other fraudulent activities, the DCS will not compensate you. You'll need to contact your deposit taker immediately to report fraud and follow their procedures for recovery.
  • Bank error in your favour: If your account is incorrectly credited (e.g., due to a banking error) and the deposit taker later reclaims the funds, the DCS does not cover this loss. These clawbacks are considered corrections of administrative errors, not a failure of the deposit taker.
  • Court orders: If your funds are frozen or seized due to legal action, such as a court order, the DCS does not provide protection. Legal restrictions take precedence.
  • Tax liens: Claims by the Inland Revenue Department (IRD) take priority over DCS payouts.
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