Term Deposits vs Savings Accounts

Term Deposits vs Savings Accounts

Here is the thing most people get wrong about this decision. It is not really about which product is better. It is about which chunk of your money belongs in which bucket — and the price you pay for keeping money accessible is bigger than most of us realise.

On the rates we looked at, an on-call savings account paying 2.20% against a 12 month term deposit at 3.90% costs you about 1.70 percentage points a year. That is the fee for being able to reach your money without notice. Whether that fee is worth paying depends entirely on what the money is for.

There is also a piece of the puzzle that changed recently and that plenty of savers have not caught up with: the Depositor Compensation Scheme, which has been running since 1 July 2025 and covers up to $100,000 per depositor, per deposit taker. It shifts how much the credit rating of a smaller bank should worry you.

How We Researched This Guide

We built this from the providers' own published rates and terms rather than from anyone's summary of them. The term deposit rates come from the deposit takers' own tables compiled as at 10 September 2026, with Heartland's own table as at 17 August 2026. Savings account rates come from Heartland, Rabobank and Kiwibank directly. For the compensation scheme we went to the Reserve Bank's own pages, and the relationship property rules are set out in full on legislation.govt.nz.

Two things surprised us. First, the gap between a 1 year and a 5 year term deposit is only about 0.7 to 0.85 of a percentage point — locking your money up for five years buys you very little extra yield. Second, Heartland carries a BBB credit rating but pays a similar rate to the AA- banks. That is a trade-off worth noticing before you chase a headline number.

The Quick Summary (60-Second Version)

If you only read one part of this, read this bit.

• A term deposit fixes your rate and your term. You get certainty, and you give up access.
• An on-call savings account pays less — the gap to a 12 month term deposit is about 1.70 percentage points a year.
• Notice accounts sit in the middle: more interest than on-call, and access if you give 32, 60 or 90 days' warning.
• Minimum deposits vary a lot — ANZ asks $10,000, while Kiwibank, Rabobank and Heartland start at $1,000.
• The Depositor Compensation Scheme covers $100,000 per depositor, per deposit taker, automatically.
• Joint account holders are each covered separately, so a couple with $200,000 in one joint account at one bank is fully covered.

What You Actually Give Up for Access

The savings account market splits into three tiers, and the rates tell the story. At the bottom sit on-call accounts. Heartland's Digital Saver and Cash PIE both pay 2.20% p.a. as at 17 August 2026, with unlimited withdrawals to one nominated account and no minimum monthly deposit. Kiwibank's Online Call earns interest from day one with no minimum balance and no conditions to meet.

In the middle are notice accounts. Heartland's 32 day Notice Saver pays 2.90% p.a. and the 90 day version pays 3.10% p.a. as at 17 August 2026. You get more interest, and you keep access — provided you plan ahead. Rabobank's NoticeSaver needs 60 days' notice for each withdrawal, with no account fees and no minimum balance.

Then there are the bonus-style accounts. Rabobank's PremiumSaver pays a premium rate on balances up to $100,000, but only if you increase your month-end balance by at least $50 from the start of the month, excluding interest paid during that month. Miss that $50 and the minimum rate applies to the whole balance for that month. That is a real risk, and it is why we prefer unconditional rates.

Where the term deposit rates sit

Term deposits pay more because you are lending the bank a fixed sum for a fixed term at a fixed rate. Here is what the main providers were offering as at 10 September 2026.

The best 12 month rate in the market was 4.05%, offered by BNZ and Rabobank. The best 5 year rate was 4.90%. Notice how flat that curve is. Across the institutions above, going from one year to five years adds roughly 0.7 to 0.85 of a percentage point. You are tying money up for four extra years to earn a fraction more each year.

The Rules That Catch People Out

Early repayment is not a right

If the bank agrees to let you break a term deposit early, the interest rate payable may be reduced. That means the money is not as accessible as it looks. Check the early repayment terms before you commit, not after. Heartland, for example, charges no fees to invest in a term deposit, with a $1,000 minimum and a $5,000,000 maximum, and terms from one month to five years — but the early exit terms still matter.

Laddering spreads your maturities

Rather than locking a lump sum into one date, split it across several terms. Money matures at regular intervals, so you always have something coming free. It is the standard answer for anyone who wants term deposit rates without total illiquidity. Just remember the yield curve is flat, so a long ladder does not earn much more than a short one.

Rate is not the same as rating

ANZ, ASB, BNZ and Westpac carry AA- credit ratings. Kiwibank carries AA. Heartland carries BBB. A BBB rating still pays a similar rate to an AA- bank. That is the trade-off worth noticing. General Finance, a non-bank deposit taker, offered 4.55% for one year and 5.25% for five years — higher rates reflecting a lower credit rating and more risk. Kiwi Bonds sit at the other end, at 2.50% for one year.

And honestly, New Zealand ownership is not automatically safer. BNZ itself nearly collapsed in the late 1980s and was sold to National Australia Bank.

Where Your Money Is Protected

The Depositor Compensation Scheme started on 1 July 2025 under the Deposit Takers Act 2023 and is administered by the Reserve Bank. It covers up to $100,000 per depositor, per deposit taker, and coverage is automatic — you do not apply. Transaction, savings, notice and term deposit accounts are all covered, for individuals, businesses and trusts.

Joint accounts work in your favour. Because the limit applies per depositor, each holder is covered up to $100,000 in their own right, so a couple with $200,000 in a joint account at one bank is fully covered. A trust is treated as a separate depositor. Children's accounts are protected the same way.

What is not covered matters just as much: KiwiSaver, bonds, shares, foreign-currency accounts, and losses from fraud or scams. If you hold US dollars in an account at a New Zealand bank, the scheme does not protect it. There are 27 banks registered in New Zealand as at 2026.

Questions You Might Have

Should I put my emergency fund in a term deposit?

Only if you ladder it so some portion matures regularly. Putting the whole emergency fund into a single long term deposit defeats the purpose — you need that money to be there when something goes wrong, not in eighteen months. Keep the core of it on call and ladder anything above that.

Is a PIE account better than a normal savings account?

It depends on your tax rate. A PIE is taxed at your Prescribed Investor Rate, capped at 28%. If your marginal rate is 33% or 39%, a PIE with a slightly lower headline rate can deliver a better after-tax return. Kiwibank's PIE Online Call works the same way as its standard Online Call but is taxed at your PIR.

What happens if I need to break a term deposit early?

If the bank agrees, the interest rate payable may be reduced — so you may get less than you expected, or in some cases very little interest at all. It is not a penalty you can calculate in advance with confidence. Read the early repayment terms before you commit the money.

Can I have a joint term deposit?

Yes, and the compensation scheme treats each holder separately, so a couple can hold $200,000 jointly at one bank and be fully covered. The bigger issue is relationship property law. If you pay an inheritance into a joint account or joint term deposit, it can become so mixed with relationship property that it can no longer be traced.

What Matters Most

The decision is not term deposit or savings account. It is which money goes where, and for how long you can genuinely do without it. Money you might need this month belongs on call, even at 2.20%. Money you will not touch for a year belongs in a term deposit at 3.90% or better.

What we would push back on is the assumption that locking in longer is always better. The yield curve is flat. Going from one year to five years adds roughly 0.7 to 0.85 of a percentage point, and in exchange you give up access and take on early repayment risk. For most people, a short ladder and a solid on-call buffer beats one long lock-in.

Check the rate, check the term, and check the early exit terms. Then check the $100,000 compensation limit against what you are actually holding at any one bank. Those four checks do more for your return than chasing the last 0.1%.