Litigants shocked by low interest rate
Litigants be warned: The interest you will earn on sums of money paid into court is appalling.
While people managing their own money generally target the highest risk-rated return possible, people fighting over sums of money held by the court need to keep an eye on the rate of interest their money is earning.
A bitter legal tussle between the legal representatives of two sets of finance company investors in Nelson over a pot of just over $9 million resulted in the money being paid into the court for safekeeping in May last year until an appeal could be heard.
The civil fight has now been settled, but the trustee for one of the parties, Stephen Eaton, has revealed the $9m would have earned a mere 1.75 per cent interest in a Westpac account. Eaton and his fellow trustee, Seddon Marshall, only discovered the interest rate to be paid on the $9m, which would be tied up pending appeal and was only released in the past month following settlement, by inquiring.
"We were surprised," Eaton said. "We thought we would get 3.5 per cent."
Eaton said that is closer to the amount larger sums of money should attract in on-call wholesale accounts or a solicitor's trust account.
As the interest would belong to the party that won the case, the trustees looked for a better deal. They asked the court invest it in a six-month term deposit earning 4 per cent.
While court staff were helpful once the issue was raised, Eaton said the courts did not seem focused on the issue.
"Quite frankly, the court doesn't seem to be too interested."
The fact children using The Cooperative Bank's Dollars and Sense call account could have got 2.75 per cent if they had been in charge of investing the seven-figure sum shows how poor the interest rate really is.
However, the Ministry of Justice's response suggests such a comparison is not strictly fair.
"Money is held by the Crown in trust for a variety of reasons," it said in a statement.
"The Ministry manages Law Trust accounts on behalf of the Treasury, which are standard Westpac multiple-deposit scheme business accounts that have a floating interest rate.
"The current rate is 1.65 per cent, which is the lowest rate for some years."
It has not always been that way. Back in 2007, the interest rate on the account was as high as 5.25 per cent, the ministry said.
"The account is flexible. It handles a steady stream of money being paid in and paid out. Usually, these are small sums - in most cases, under $500 - which are not held by the courts for long," it said.
Once called on to do better, the ministry claimed to have done a pretty good job, and "negotiated a rate with Westpac that was higher than the standard term-deposit rates on offer at the time".
- © Fairfax NZ News
Do you agree with Meat Industry Excellence chairman John McCarthy's views that it is not in the national interest to turn New Zealand into a giant dairy farm?Related story: Sheep, beef concerns over dairying squeeze