A term deposit pays a known rate for a set term; a KiwiSaver fund pays whatever its investments return, with employer and government money added when you contribute and the balance locked in until 65. This page compares certainty, access, tax and long-run returns. Current term deposit rates from NZ banks are on the term deposit rates comparison. Other KiwiSaver trade-off guides are on the KiwiSaver strategies hub.
The Core Difference
| KiwiSaver | Term deposit | |
|---|---|---|
| Returns | Variable (market-linked for growth funds) | Fixed rate for the term |
| Risk | Low to high (depends on fund type) | Very low; Depositor Compensation Scheme covers up to $100,000 per depositor per institution |
| Employer contribution | Yes: 3.5%+ (from 1 April 2026) | No |
| Government contribution | Yes: up to $260.72/yr (from 1 July 2025) | No |
| Liquidity | Locked until 65 (with exceptions) | Locked for the term (break fees apply) |
| Tax | PIE (max 28% PIR) | Taxed at marginal income tax rate (up to 39%), unless a PIE term deposit |
| Inflation | Growth funds have historically beaten inflation over long periods | A fixed rate may fall behind inflation |
| Access in emergency | Very limited | Break fee, then full access |
What a Term Deposit Offers
Certainty
A term deposit pays a fixed, agreed interest rate for a set period, with no market risk: a 1-year deposit at 4.5% returns 4.5% before tax whatever share markets do. That makes it a common home for money with a fixed date or no room for loss, such as a home deposit waiting for settlement.
Access, relative to KiwiSaver
Term deposits are locked for the term, but can usually be broken early with a fee or reduced interest. KiwiSaver, by contrast, stays invested until 65 unless one of the early withdrawal grounds applies, such as a first home or significant financial hardship.
Simplicity
No fund type to choose and no market movements: deposit, earn interest, and decide again at maturity.
What KiwiSaver Offers
Employer and government contributions
A term deposit earns interest and nothing else. KiwiSaver contributions from pay bring an employer contribution (at least 3.5% of gross pay, before ESCT) and can earn the government contribution, worth up to $260.72 a year to members who put in $1,042.86 between 1 July and 30 June; who qualifies for the government contribution sets out the eligibility rules.
PIE tax for higher earners
KiwiSaver returns are taxed at your PIR, a maximum of 28% even if your income tax rate is 33% or 39%. Ordinary term deposit interest is taxed at your marginal rate: on $100,000 at 4.5% ($4,500 of interest), a 39% taxpayer pays $1,755, against $1,260 at a 28% PIR, a difference of $495. Some banks offer PIE term deposits, which are taxed at your PIR too; the KiwiSaver PIE tax guide explains the structure.
Long-run returns
Over 20 to 30 year periods, growth funds have historically returned more than term deposits, with much more variation along the way. As an illustration with assumed average returns, $50,000 left for 25 years grows to:
- about $150,000 at 4.5% a year (term deposit, before tax)
- about $271,000 at 7% a year (growth fund, before tax and fees)
Neither rate is guaranteed over 25 years: term deposit rates change at each rollover, and growth fund returns vary from year to year and can be negative.
After-Tax Comparison at the Same Rate
At the same pre-tax return, the PIR cap makes a difference only above the 28% rate: a 5% return taxed at 33% leaves 3.35%, and taxed at a 28% PIR leaves 3.6%. Conservative and cash KiwiSaver funds hold assets similar to term deposits (bank deposits, bonds) and pay management fees, so their after-tax return can be close to a term deposit’s; the employer and government contributions are the larger difference.
KiwiSaver Cash and Conservative Funds vs Term Deposits
- KiwiSaver cash funds invest in bank deposits and cash equivalents, similar underlying assets to a term deposit
- Their returns are reduced by management fees, and are taxed at your PIR
- They aren’t covered by the Depositor Compensation Scheme, and their returns aren’t fixed
Members near retirement often hold both: a conservative or cash KiwiSaver fund and term deposits. How KiwiSaver can be drawn down from 65 is covered in KiwiSaver at 65.
Frequently Asked Questions
Is KiwiSaver safer than a term deposit? In a KiwiSaver cash or conservative fund, the underlying assets are similar to a term deposit (bank deposits, bonds). For growth or aggressive funds, the risk is much higher than a term deposit. Term deposits up to $100,000 per depositor per licensed deposit taker are covered by the Depositor Compensation Scheme (DCS), run by the Reserve Bank since 1 July 2025. KiwiSaver savings are not covered by the DCS, and KiwiSaver returns are not guaranteed.
Can I have both KiwiSaver and a term deposit? Yes. They are separate products with no interaction, and many people hold both: KiwiSaver for retirement savings and term deposits for money they may need sooner.
What does breaking a term deposit cost? Each bank sets its own terms, often an early repayment adjustment that reduces the interest you receive, and some need to approve the request or require notice first. The term deposit rates comparison shows how break costs are worked out.
Do term deposits count toward the KiwiSaver government contribution? No. The government contribution is earned on contributions to your KiwiSaver account. Term deposits are a completely separate financial product and have no interaction with KiwiSaver.