Invest in term deposits (2024)

When is a bank account the right place for your money?

Savings accounts andterm deposits with a bank, credit union or building society are convenient for saving.

They’re relatively safe places to park our money and earninterest, and they are easy to manage and access. Bank accounts and term deposits are a great place for short-term savings, emergency funds, and managing your budget.

Returns on bank deposits aren’t as high as other types of investments, so while they're great for managing the day to day, they're not as powerful for long-term goals.

In this guide

Easy access to money

Whether we choose a savings account or term deposit will depend on how quickly we need the money. Good questions to ask are: ‘Would I need it if I lost my job?' Or 'Are the savings for short-term spending such as holidays?’

Returns from bank deposits

Bank deposits usually earn interest. That means for every dollar we save, we earn a few cents each year in interest.Interest may be paid daily, monthly or yearly, but is usually quoted as an annual figure such as 2% or 4%.

Most savings accounts offer a straightforward interest rate. Bonus saver accounts are different because they offer a low basic rate and a ‘bonus’ interest rate if we meet certain criteria, such as not withdrawing our money.

Banks offer differentinterest rateson deposit accounts, and it’s worth shopping around to find the best rate.

You can find current rates onMoneyHuborinterest.co.nz.

Are you looking for income or growth?

Bank deposits are good for regular interest payments, or access to money at short notice. However, tax andinflationcan eat into the value of the interest earned.

If you want the money you invest to grow further, and can cope with a higher level of risk, consider other investments such asshares,managed fundsand property. Here's aguide to different kinds of investments.

If a savings account or term deposit is a PIE (Portfolio Investment Entity), you will pay a lower rate of tax on the interest you earn. There is usually a minimum deposit and other criteria for investing in these types of accounts.

Risks of investing in bank deposits

Bank deposits are some of the safest investments available to New Zealanders. But no one can guarantee that a bank or financial institution won’t fail.

Someone with large sums to invest may want to spread the money across several banks or other institutions such as credit unions. ‘Non-bank deposit takers’ such as finance companies tend to be riskier than banks.

The government does not guarantee bank deposits, but the Reserve Bank keeps an eye on how each bank is doing and requires them to publish their credit rating. This acts as a rough guide as to the likely risk of the bank failing.

Sorted’sinvestor profilercan help you work out a mix of investments based on what type of investor you are (your ‘investor profile’).