The OCR was hiked to 2.50% on 8 July and most bank term deposit comparison sites will show you the same thing: a table of rates, sorted highest to lowest, five-year terms from ANZ and BNZ both topping out around 4.70%. What almost none of them show you is that two people earning the identical rate on the identical amount can walk away with very different after-tax income, depending on which of four products they used to earn it.
"Fixed income" on this site covers four different things. A bank term deposit, locked for a fixed term at a fixed rate. Kiwi Bonds, the government's own retail bond product, bought directly from Treasury's debt management office rather than through a bank. A PIE bond fund - Smart's NZB (investment-grade NZ corporate bonds) or NGB (actual NZ government bonds), both listed on the NZX. And direct corporate bonds bought on the NZDX, which most retail investors never touch and this issue won't either, since minimums and liquidity there make it a different conversation.
Term deposit interest and Kiwi Bond interest are both taxed as resident withholding tax (RWT), at a rate you nominate to match your income tax bracket - 10.5%, 17.5%, 30%, 33% or 39%. Miss the nomination and the bank defaults you to 33%, whether or not that's actually your rate. RWT isn't a final tax either; it's credited against what you actually owe, so a top-bracket earner on 39% who's been withheld at 33% still owes the difference at return time.
A PIE bond fund like NZB or NGB works differently. Distributions are taxed at your Prescribed Investor Rate, capped at 28% no matter how much you earn.
Run the numbers on $50,000 at 4.70% for a year: $2,350 of interest either way. In a term deposit, someone on the top personal tax rate pays 39% on that - $916.50, leaving $1,433.50. The same $2,350 earned inside NZB or NGB is capped at 28% - $658, leaving $1,692. Same rate, same amount, $258.50 more in your pocket for the year, purely from which product the interest passed through. That gap only exists at the higher tax brackets - someone on 17.5% is roughly indifferent between the two - but nobody publishing a "best term deposit rates" table is telling you which bracket makes the comparison change.
Most people never confirm their PIR matches what's being withheld. Enter your income and find out. Calculate my PIR →
New Zealand didn't have deposit insurance until the Depositor Compensation Scheme came into force on 1 July 2025. It now protects up to $100,000 per depositor, per institution, funded by the deposit-taking sector and run by the Reserve Bank. Split across accounts at the same bank, that $100,000 cap still applies in total - it isn't per account. Hold term deposits at two different banks and you get $100,000 of cover at each. That's a real, practical reason to spread a large term deposit position across institutions that didn't exist before mid-2025 - previously, "which bank" was a pure yield-and-relationship decision with no formal government backstop either way.
Kiwi Bonds sit outside the DCS entirely, because they're not a bank deposit - they're a direct obligation of the Crown, which is a different kind of backing altogether and isn't capped at $100,000.
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A term deposit's return is fixed and known the day you sign up. NZB and NGB are listed funds whose unit price moves with interest rates in the meantime - rates rise, the bonds already in the fund are worth less until they mature, and the unit price reflects that. You can sell either fund on the NZX any business day, unlike a term deposit's early-withdrawal penalty, but that liquidity comes with a return that isn't locked in the way a term deposit's is. Calling a bond fund "safer than shares" is true on volatility. It's a different statement to "as predictable as a term deposit," and the two get conflated more often than they should.
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