Cash Drag Calculator NZ 2026/27
Cash feels like the absence of a decision, which is what makes it expensive. Money left in a savings account is not sitting still, it is being taxed at your marginal rate every year and eroded by inflation every year, and on current New Zealand numbers those two forces together are usually larger than the interest. The result is a balance that rises while its purchasing power falls, which is a slow loss dressed as a safe outcome. This page prices that properly. It applies the correct tax to the cash side, either your marginal rate for a bank account or your prescribed investor rate for a PIE cash fund, and it applies the correct tax to the invested side, which is where most comparisons go wrong. A foreign shares PIE is not taxed on its return at all; under the fair dividend rate it is taxed on 5 percent of its value each year at your PIR, and the actual gains are not taxed on top of that. A New Zealand and Australian shares PIE is taxed on dividends only. An income or bond PIE is taxed on the whole return. Those three bases produce materially different answers from the same gross return, so the calculator asks which one you are actually holding rather than assuming. It then runs both paths year by year, in nominal terms and in today's money, so you can see the gap compound. What it will not do is tell you to invest your emergency fund, and the amount you enter should exclude it.
Investment before tax = gross return − fund fee. The fee is deducted first because it is charged on the balance regardless of performance.
Foreign shares PIE (fair dividend rate). Tax is 5% of value × your PIR each year, which at a 28% PIR is 1.40% of the balance. Actual dividends and gains are not separately taxed on top.
New Zealand and Australian shares PIE. Tax applies to dividends only at your PIR; share gains in these markets are not taxed inside the PIE.
Income or bond PIE. The whole return is taxable, so tax = return after fee × your PIR.
Real values use (1 + nominal) / (1 + inflation) − 1 rather than subtracting inflation, which overstates the real return slightly.
Annual compounding on both paths, no contributions and no withdrawals, so the comparison isolates the placement decision.
Excluded: return volatility and sequence risk, transaction and FX costs on entering the fund, any change in your PIR over the period, and tax rate changes.
Prescribed investor rates are 10.5%, 17.5% and 28%. Our PIR rate calculator works out which applies to you.
Not financial advice. Last verified: .
The two rates that decide it
| Cash rate before tax | 2.50% |
| Less tax at 33% | -0.83% |
| Cash after tax | 1.68% |
| Investment gross return | 7.00% |
| Less fund fee | -0.30% |
| Less tax, fair dividend rate at 28% | -1.40% |
| Investment after tax and fees | 5.30% |
| Cash after inflation | -0.51% |
| Investment after inflation | 3.03% |
The real rows are the ones that matter. A positive nominal return on cash and a negative real return is the normal situation, not an unusual one.
Year by year
| Year | Cash | Invested | Gap | Cash in today's money |
|---|---|---|---|---|
| 1 | $50,837.50 | $52,650.00 | $1,812.50 | $49,743.15 |
| 2 | $51,689.03 | $55,440.45 | $3,751.42 | $49,487.62 |
| 3 | $52,554.82 | $58,378.79 | $5,823.97 | $49,233.40 |
| 4 | $53,435.11 | $61,472.87 | $8,037.76 | $48,980.49 |
| 5 | $54,330.15 | $64,730.93 | $10,400.78 | $48,728.88 |
| 6 | $55,240.18 | $68,161.67 | $12,921.49 | $48,478.56 |
| 7 | $56,165.45 | $71,774.24 | $15,608.79 | $48,229.53 |
| 8 | $57,106.23 | $75,578.27 | $18,472.05 | $47,981.77 |
| 9 | $58,062.75 | $79,583.92 | $21,521.17 | $47,735.29 |
| 10 | $59,035.31 | $83,801.87 | $24,766.57 | $47,490.08 |
The final column is the cash balance expressed in today's money. It falls every year while the nominal balance rises.
How the gap scales with time
| Horizon | Cash | Invested | Gap | Cash in today's money |
|---|---|---|---|---|
| 5 years | $54,330.15 | $64,730.93 | $10,400.78 | $48,728.88 |
| 10 years | $59,035.31 | $83,801.87 | $24,766.57 | $47,490.08 |
| 15 years | $64,147.94 | $108,491.46 | $44,343.52 | $46,282.76 |
| 20 years | $69,703.35 | $140,455.07 | $70,751.73 | $45,106.14 |
| 25 years | $75,739.87 | $181,835.75 | $106,095.89 | $43,959.44 |
The gap compounds rather than accumulating, so doubling the horizon from ten to twenty years nearly triples the cost rather than doubling it.
What the tax basis does to the answer
| Fund type | Tax on the return | Net return | After 10 years | Gap vs cash |
|---|---|---|---|---|
| NZ and Australian shares PIE | 0.84% | 5.86% | $88,366.75 | $29,331.45 |
| Foreign shares PIE (FDR) | 1.40% | 5.30% | $83,801.87 | $24,766.57 |
| Income or bond PIE | 1.88% | 4.82% | $80,089.81 | $21,054.51 |
Same 7.00% gross return and same 0.30% fee in all three. The difference is entirely the tax basis, which is why it is an input rather than an assumption.
The Balance Rises While The Money Shrinks
Cash is the only asset where the number on the screen and the value of the money move in opposite directions, which is why the loss goes unnoticed.
On the worked example the after-tax return on cash is 1.68% and inflation is 2.20%. The real return is -0.51% a year. The balance grows from $50,000.00 to $59,035.31 over ten years and buys $47,490.08 of what it used to, so $2,509.92 of purchasing power is gone.
Nothing about that appears on a bank statement. The statement shows a larger number every year.
Worked Example: $50,000 Over Ten Years
Cash at 2.50% taxed at a 33% marginal rate nets 1.68% and reaches $59,035.31.
A foreign shares PIE returning 7.00% gross, less a 0.30% fee and 1.40% of fair dividend rate tax, nets 5.30% and reaches $83,801.87.
The gap is $24,766.57, which is larger than everything the cash earned across the entire decade.
Most Comparisons Get The Invested Side Wrong
The common shortcut is to apply your PIR to the whole investment return, which is only correct for an income or bond fund.
A foreign shares PIE is taxed under the fair dividend rate. Tax is charged on 5% of the fund's value each year at your PIR, whatever the fund actually returned, and the real dividends and gains are not taxed on top. At a 28% PIR that is 1.40% of the balance a year, not 28% of the return.
A New Zealand and Australian shares PIE is taxed on dividends only, so at a 3.00% yield and a 28% PIR that is 0.84% a year, and the share gains are untaxed.
The three bases produce $88,366.75, $83,801.87 and $80,089.81 over ten years from an identical gross return. That is a $8,276.94 spread created purely by what the fund holds.
Our FIF calculator, FDR method covers the foreign investment rules in detail, including the $50,000 de minimis threshold below which they do not apply at all.
Waiting Costs More Than It Looks
The gap compounds, so it does not grow in proportion to the time. On the worked example it is $10,400.78 at five years and $24,766.57 at ten, then $70,751.73 at twenty and $106,095.89 at twenty-five.
Moving from ten years to twenty does not double the cost. It nearly triples it. The years at the end are worth far more than the years at the start, which means the cost of a delay is paid at the far end of the horizon where the balances are largest.
That asymmetry is the case against waiting for a better entry point, and it holds even if the timing turns out badly, because a poor entry affects one year while the horizon affects all of them.
What Should Stay In Cash
None of this argues for holding no cash. Two categories belong there regardless of the drag.
Your emergency fund. It has to be available on the worst possible day, and the return given up is the price of that availability. Our emergency fund calculator sizes it and our emergency fund placement calculator finds the least costly place to hold it.
Money with a date. A deposit you will use in two years, a known bill, a planned purchase. Investing money you have committed to spending means being forced to sell on someone else's timetable.
Everything beyond those two is what this page is about. Our savings to investment switch calculator deals with the horizon at which the switch stops being a gamble.
Fees Compound Against You
The fund fee is a separate input here rather than folded into the return, because it behaves differently. It is charged on the whole balance every year whatever the fund returns, so it compounds against you in exactly the way returns compound for you.
On the worked example a 0.30% fee takes the gross 7.00% down to 6.70% before tax. That looks minor in a single year and is not minor across twenty-five.
Our fund fee drag calculator isolates that effect on its own.
Related NZ Investment and Cash Calculators
- Emergency Fund Placement Calculator: the least costly place for cash that has to stay reachable.
- Savings to Investment Switch Calculator: the horizon at which switching makes sense.
- PIE Savings vs Bank Savings Calculator: getting the cash side taxed correctly.
- FIF Calculator, FDR Method: how foreign shares are actually taxed.
- Inflation Calculator: what past inflation did to the purchasing power of money.
Related calculators
- Investment Boost Calculator NZ: 20% Asset Tax Deduction.
- IR330C Withholding Rate Chooser: NZ Contractor Tax Rate 2026/27.
- IRD Penalties and Interest Calculator NZ: Late Tax Cost.
- Low-Value Asset Write-Off Calculator NZ 2026/27: $1,000 Threshold.
How to work out what holding cash is costing you
- Enter only the money that is genuinely surplus. Exclude your emergency fund and anything you have a known use for within a few years. Cash held for those reasons is not drag, it is doing a job, and the comparison does not apply to it.
- Set the cash rate and how it is taxed. A bank account is taxed at your marginal rate. A PIE cash fund is taxed at your prescribed investor rate, capped at 28 percent. The two are not comparable on the headline rate alone.
- Set a gross investment return and a fund fee. Use a long-run expectation for the assets you would actually hold, not a recent year. The fee is deducted before tax, and it compounds against you exactly as returns compound for you.
- Choose the right tax basis for the fund. This changes the answer materially. A foreign shares PIE is taxed on 5 percent of its value under the fair dividend rate regardless of what it returns. A New Zealand and Australian shares PIE is taxed on dividends only. An income or bond PIE is taxed on the whole return.
- Set inflation and a horizon. Inflation is what turns a small nominal gain on cash into a real loss. The horizon matters more than any other input, because the gap between the two paths compounds rather than accumulating.
- Read the real column, not the nominal one. Cash almost always grows in nominal terms and shrinks in real terms. The purchasing power figure is the honest measure of what the money can still buy at the end of the period.