So you’ve got $10,000 in the AMP KiwiSaver cash fund. Your returns after one year, minus tax and fees? $1.60

‘‘A cash fund is very important to members who are planning a withdrawal in the near future, such as a firsthome withdrawal or an upcoming retirement withdrawal.’’ ANZ spokesman Stefan Herrick

Thousands of investors with a combined $2.8 billion in KiwiSaver cash funds have been paying more in fees than they are getting in returns.

Interest rates on the bank deposits and bonds KiwiSaver cash funds invest in are at historical lows thanks to central banks around the world moving to support Covid-affected economies.

The challenge to fund managers from low interest rates is leading to the closure of some managed funds, including the $140 million Capital Stable fund from the Lifestages KiwiSaver scheme, and KiwiSaver manager Booster has temporarily cut its cash fund fees, without notifying investors, to ensure they get a positive return.

Investment experts are asking whether fees on KiwiSaver cash funds should be cut further, and Christopher Walsh, who runs the financial information service Moneyhub, said: ‘‘Fees on cash funds need to be fairer. Pricing needs to reflect the returns from cash.

‘‘Cash fund management should be a very low margin business.’’

Morningstar data shows that cash funds’ annual fees range from $22 a year to $49.80 and asset-based fees from 0.27 per cent to 0.77 per cent of assets under management.

Sam Stubbs, chief executive of the Simplicity KiwiSaver scheme, called for the big banks to cut their fees.

‘‘Fees that high for managing cash are just wrong,’’ he said.

The closure of the Capital Stable fund followed the shuttering of the Bonus Bonds scheme last year. Its manager, ANZ, said low interest rates meant the fund could no longer earn enough to generate attractive prizes.

Booster’s David Beattie said: ‘‘We are asking whether it’s a product that needs to change, but in the meantime we have temporarily lopped a chink off the net fee to make sure that the return is not negative.’’

The balance of returns to investors compared to fees for KiwiSaver managers has shifted as interest rates on bank deposits have fallen, as shown by the quarterly fund updates KiwiSaver managers have to publish.

The latest fund update from AMP for its cash fund, which had 3930 investors at the end of December, showed a fictional investor with $10,000 would have got an after-tax return of just $1.60.

They would have paid an annual membership fee of $23.40, and fund charges of 0.59 per cent, resulting in a dollar charge on $10,000 invested of $59, bringing total fees to $82.40.

KiwiSaver managers still back the funds, though.

ANZ spokesman Stefan Herrick said: ‘‘We don’t think KiwiSaver cash funds are facing an existential crisis, and believe our cash fund offers a competitive rate of return to fees and charges.’’

He said: ‘‘A cash fund is very important to members who are planning a withdrawal in the near future, such as a first-home withdrawal or an upcoming retirement withdrawal.’’

Despite the cash funds being billed as a temporary holding place for money, more than 152,000 KiwiSavers have money in them.

‘‘We just think cash funds and funds with big cash components have run their race,’’ said Graham Duston, executive director of the SBS Bank-owned FANZ, which operates the Lifestages KiwiSaver scheme.

In the years up to and immediately after KiwiSaver launched in 2007, cash funds made sense as interest rates were high, but the pandemic has driven rates to all-time lows, Duston said.

‘‘When interest rates were 8-9 per cent, it [the Capital Stable fund] really delivered a very good risk return for investors without any drama,’’ Duston said.

As interest rates fell in 2018 and 2019, some KiwiSaver schemes including Westpac, BNZ, AMP and ANZ cut their cash-fund fees.

But the most recent quarterly fund updates from KiwiSaver providers show just how low returns are after fund and scheme fees.

The huge ASB cash fund, which held $683 million at the end of December on behalf of 42,798 investors, had the bulk of its money deposited with two banks: 39.4 per cent with Westpac, and 55 per cent with ASB.

The ASB cash fund’s latest quarterly update showed members getting a $14 after-tax return for the year on $10,000 invested, after paying fund charges of $35 and a $30 annual membership fee.

ANZ KiwiSaver’s cash fund is even bigger, with $768m placed in it by 44,656 investors.

Its latest fund update showed fictional investor ‘‘Sarah’’ getting an after-fee, after-tax return of $63 on $10,000. She would have paid $19 in fund fees as well as an $18 membership fee.

ANZ cut its cash fund fees in 2019 from 0.33 per cent to 0.19 per cent per year, meaning next year’s fees will be lower.

BNZ does not charge a membership fee, but charges a 0.3 per cent fee on its cash fund, which held $236m for 17,595 investors at the end of December.

Its fund update showed fictional investor ‘‘John’’ getting an afterfees, after-tax return of $70 after paying $30 in fees.

Westpac’s $510m cash fund had 42,875 investors, and its fictional investor got an after-fees, after-tax return of $51on $10,000 invested.

Westpac charges a cash fund fee of 0.29 per cent equating to $29 and an annual membership charge of $12.

Nathaniel Johnson, spokesman for AMP, said the majority of investors chose to put their money in higher-risk KiwiSaver funds.

‘‘Given the low-risk nature of the (cash) fund, the potential to grow savings is also low, meaning it is not recommended as a longterm savings approach,’’ Johnson said.

Westpac spokesman Will Hine said: ‘‘We reduced fees for all funds in the Westpac KiwiSaver Scheme in December 2019, and we continue to review these fees on an ongoing basis.’’