How Banks Use Your Money to Get Rich — And How You Can Flip the System with Property
- Staircase Financial
- Jun 24
- 3 min read
Updated: Jun 25
Inflation keeps nibbling away at your savings while New Zealand’s banks grow richer every year. In 2024 they notched up a record $7.22 billion net profit thanks largely to the way they leverage everyday deposits. If you’re parking cash in a term‑deposit, chances are the real return (after tax and inflation) is negative.
Rather than funding the banks’ profits and watching your purchasing power shrink, you can turn the tables by using the bank’s money to build wealth through residential property.
The System Is Built to Benefit the Banks
New Zealand runs on a debt‑based, fractional‑reserve banking model—but the “reserve” part is mostly history. Statutory reserve ratios were scrapped back in 1985, meaning banks can now expand the money supply simply by issuing loans. That’s right, they essentially create debt by typing a loan limit on a computer. Physical notes and coins make up barely 3 percent of the money supply; the other 97% is credit typed into existence by the banks.
The Problem: Inflation + Tax Eat Your Savings
Imagine you keep $100,000 in a term deposit at the current average around 4 percent.
Gross interest: $4,000
After 33 % tax: $2,680 (effective 2.68%)
Latest annual inflation: 2.2 % (per Stats NZ)
Your purchasing power grows by roughly 0.5% a year. Leave that money there for a decade and, after compounding and accounting for the eroded value of inflation, you would only have the equivalent in today’s purchasing power of about $106,000! Even if your savings purchasing power grew by say 1% a year you would still only have the equivalent of around $111,000 in todays purchasing power.
How Banks Use Your Money to Enrich Themselves
While you earn sub‑inflation returns, the bank:
Counts your deposit as stable funding.
Creates new digital money and lends it out at 5–10 %+ on mortgages, personal loans, and credit cards.
Pockets the margin, less a small cost of funding and regulatory capital.
That spread helped the majors bank a combined $7.22 billion last year, even amidst rising funding costs.
The Solution: Flip the System
Leverage the Bank’s Money for You
Instead of letting the bank leverage your savings, use the bank’s leverage to buy an asset that historically outpaces inflation.
Example:
Invest your $100k as a 20 % deposit on a $500k home.
The bank lends the remaining $400k.
You now control a $500k asset while putting up only a fifth of the capital.
Why Property Works
Leverage multiplies gains – If values rise 5 % a year, that property is worth $814k in 10 years and your equity balloons to $414k.
Inflation becomes your ally – Rising prices lift rents and erode the real size of the mortgage.
Forced savings – Each mortgage payment chips away at principal, compounding your equity.
Tangible hedge – Bricks and mortar have shown an average 7.5 % annual growth since 2003, well ahead of the CPI.
10‑Year Comparison: Bank Savings vs. Leveraged Property
Scenario | Nominal value @ 10 yrs | Real value (2025 $) |
Bank Term Deposit (2.68% after‑tax) | $130,700 | $106,000 |
Property (5 % growth, 20 % deposit) | $414,000 equity | $331,000 |
Assumes constant 2.2 % inflation and excludes rental income & expenses.
The Bottom Line
Don’t let the banks quietly erode your wealth. Use their favourite tool, leverage, to build yours instead. By redirecting savings into well‑researched residential property, you turn inflation from a silent thief into a wealth‑building tailwind. If you can’t beat the system, don’t fund it, flip it.
Talk to our expert team at Staircase to see how you can use this system to grow wealth with property.
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