Wealth

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Current best term deposit rates in NZ

Discover the latest trends and rates for current term deposits in NZ, and learn how they compare to other investment options for maximising your returns.

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Out of the major banks RaboDirect currently offers the highest 12 month fixed term deposit interest rate at 6.30%.

As at Saturday 13 July 2024, RaboDirect currently offers the highest 18 months fixed term deposit interest rate at 6.10%.

The highest 2 year fixed term deposit interest rate is 5.90%. This is currently offered by 2 banks. They are Heartland Bank and RaboDirect.

Heartland Bank currently offers the highest 3 year fixed term deposit interest rate at 5.80%.

Heartland Bank currently offers the highest 4 year fixed term deposit interest rate at 5.70%.

Heartland Bank currently offers the highest 5 year fixed term deposit interest rate at 5.60%.

These interest rates were last updated on Saturday 13 July 2024.

The interest rates we've stated are accurate to the best of our knowledge at the time of writing. Interest rates are ever-changing, so be sure to double check with your bank before locking in your interest rate.

What is a term deposit?

A term deposit is an income-generating investment.

You take your money and lock it away for an agreed length of time. In return, you get a fixed interest return on that money.

For example, I recently had $10,000 available, so I put it into a term deposit at 6% for a year. That means the bank will pay me a 6% return over the next year. That’s $600.

So at the end of the year I get my $10k back, plus the $600 return.

Term deposits can be a good way to generate an income from your money if you don’t need that cash straight away.

Even better, you can choose to get that money paid out every quarter if you want (and sometimes monthly). So in my case, I could get paid $150 a quarter from that investment.

The interest rate you get depends on what term you choose and how much you can put away, then the rate stays the same for the entire term.

This is great because you know exactly what the return on your money will be (once you can access the term deposit that is).

Compared to alternatives (e.g. managed funds and shares) term deposits are pretty safe. You know what your return will be upfront. Compare that to the share market where your return for the year is uncertain. This makes term deposits attractive to conservative, low-risk investors.

Term deposits – what are the pros and cons?

There are pros and cons to term deposits as an investment option. Let’s go through them both.

The great thing about term deposits is there’s no guessing what your return will be.

You get a fixed interest rate set from the get-go. This means you know exactly how much your investment will make.

So this could help you sleep at night knowing your term deposit isn’t beholden to a changing market.

Term deposits are also easy to set up. The investor can do it all through their online bank account without having to speak to anyone; no forms or signatures.

At the same time your returns from fixed interest are generally lower than if you invested in a managed fund or shares. That’s because 

lower risk assets tend to also get lower returns.

But on top of this your returns are taxed. For example, if I get a 6% return on a term deposit, this gets cut down to 4% once I pay tax (assuming a 33% tax rate).

Then, on top of that the value of my investment is eroded through inflation.

So, if I get a 4% after tax return and inflation is 2%, then my real after-tax return is just 2%.

That’s why term deposits are a good way to generate income but are not generally a good way to build your wealth.

That’s one reason retirees tend to like term deposits. They get a fixed income and they’re typically less concerned with growing their wealth but want to preserve the wealth they already have.

But, if you invest in a term deposit, your money is temporarily locked away. You can’t access it in a hurry. If you do need access to the money, like in an emergency, you may have to pay a penalty. And you will have to wait a certain amount of days before it’s released to you.

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Peter Norris

Peter Norris

Mortgage broker for over 10 years, property investor and Managing Director at Opes Mortgages

Peter Norris, a certified mortgage adviser with 10+ years of experience, serves as the Managing Director at Opes Mortgages. Having facilitated over $1.2 billion in lending for 2000+ clients, Peter is a respected authority in property financing. He's a frequent writer for Informed Investor Magazine and Property Investor Magazine, while also being recognized as BNZ Mortgage Adviser of the Year in 2018 and listed among NZ Adviser's top advisers in 2022, showcasing his expertise.

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