Put $20,000 into a 12-month term deposit paying 5 percent a year, with your resident withholding tax rate set to 30 percent. The gross interest over the year is $20,000 times 5 percent, which is $1,000. That headline number is before tax. The bank deducts RWT of 30 percent, so $300 goes to Inland Revenue and you keep $700.
Your maturity value is the original $20,000 plus the $700 of after-tax interest, which is $20,700. The effective return in your hand is therefore 3.5 percent, not the 5 percent on the poster, because tax takes nearly a third of the interest. The RWT rate matters: at 39 percent you would keep only $610, while at 17.5 percent you would keep $825. Always set the rate to your own marginal rate so the bank withholds the right amount and you avoid a tax bill or refund later.
How it is calculated
The calculator uses simple interest for the deposit period: deposit times the annual rate times the term in years, where the months are divided by 12. That gives the gross interest. It then applies your chosen RWT rate to that interest, because banks withhold tax on interest at the resident withholding tax rate you nominate. The interest after tax is what is left, and the maturity value adds it back to your original deposit. Most New Zealand term deposits up to a year pay interest at maturity, which is why simple interest is used rather than monthly compounding. If you reinvest at maturity, only the after-tax interest rolls into the next term, so the compounding tool gives a fuller picture over several years. Choosing the RWT rate that matches your marginal income-tax rate keeps your year-end tax position clean.
Frequently asked questions
Is term deposit interest taxed in NZ?
Yes. Interest on a term deposit is taxable income, and the bank deducts resident withholding tax at the RWT rate you nominate, ideally matching your marginal rate. The after-tax return is what you actually receive, so a 5% headline rate is less once tax comes off. Longer terms usually pay more but lock up your money.
What RWT rate should I choose for a term deposit?
IRD requires you to nominate an RWT rate that matches your marginal income tax rate. The rates available are 10.5%, 17.5%, 28%, 30%, 33%, and 39%. If you nominate a rate that is too low, you will owe the shortfall at year end. If your rate is too high the bank over-withholds and you claim a refund when you file. Choosing the correct rate avoids both outcomes.
Can I put a term deposit inside a KiwiSaver account?
No. KiwiSaver funds are invested by your chosen KiwiSaver provider in managed funds, not held as individual term deposits. Some conservative KiwiSaver funds do invest in bank deposits internally, but you cannot direct your KiwiSaver balance into a specific term deposit. If you want a term deposit you open one directly with a bank or non-bank deposit taker outside KiwiSaver.
Are term deposits covered by the deposit compensation scheme?
New Zealand introduced a depositor compensation scheme in 2025 under the Depositor Compensation Scheme Act. The scheme covers up to NZD 100,000 per depositor per institution for deposits held with registered banks and some other deposit takers. Term deposits held with a registered bank qualify. If your total deposits at one bank exceed $100,000 only the first $100,000 is protected, so spreading large amounts across institutions reduces concentration risk.