RWT and Term Deposit Tax - Frequently Asked Questions

Resident withholding tax (RWT) applies to interest from term deposits and Kiwi Bonds, at a rate you nominate to match your income tax bracket - 10.5%, 17.5%, 30%, 33% or 39%. It isn't capped; someone on the top personal tax rate is withheld at 39% on that interest.

Prescribed Investor Rate (PIR) applies to PIE investments - KiwiSaver, PIE bond funds like NZB or NGB, and other managed funds structured as Portfolio Investment Entities. PIR is capped at 28% no matter how much you earn. Same idea (tax withheld on investment income at source), different mechanism, different ceiling.

Match it to your actual income tax bracket: 10.5% if your taxable income is $15,600 or under, 17.5% up to $53,500, 30% up to $78,100, 33% up to $180,000, and 39% above that. You nominate this directly with your bank or with NZ Debt Management for Kiwi Bonds.

If you're not sure which bracket you're in, add up your total taxable income for the year - salary, plus any other interest, dividends or self-employment income - before picking a rate.

The payer defaults you to 33%. If your actual rate is lower than that, you've been over-withheld during the year and get the difference back when you file your return - effectively an interest-free loan to IRD in the meantime. If your actual rate is 39% and you've been sitting on the 33% default, you'll owe the difference at year end instead of getting a refund.

No. RWT is credited against your actual tax liability when you file, not a final settlement. If you were withheld at the wrong rate, the difference is squared up either as a refund or as tax owed.

PIR is similar in that it's not always final either - if you're on the wrong PIR (too low), you can end up with extra tax to pay for PIE income under some circumstances, though the mechanics differ from RWT. Either way, using the correct rate from the start avoids surprises at return time.

Since 1 July 2025, yes, up to a point. The Depositor Compensation Scheme (DCS) protects up to $100,000 per depositor, per institution, funded by the deposit-taking sector and run by the Reserve Bank. Before mid-2025, New Zealand had no deposit insurance at all.

The $100,000 is a total across your accounts at that one bank, not per account, and it resets per institution - so $200,000 held as $100,000 at two different banks is fully covered, while $200,000 at one bank isn't.

No, and they don't need to be. Kiwi Bonds are a direct obligation of the Crown, not a bank deposit, so the DCS - which specifically protects bank and other deposit-taker customers - doesn't apply to them. There's no $100,000 cap on a Kiwi Bond holding, because the backing is the New Zealand government itself rather than a deposit-taking institution that could fail.

Purely on tax, for higher earners. Term deposit interest is taxed via RWT at your marginal rate, up to 39%. A PIE bond fund like NZB or NGB is taxed at your PIR, capped at 28%. On $50,000 earning 4.70% for a year, that's the difference between $1,433.50 after tax (39% RWT) and $1,692 after tax (28% PIR) on an identical $2,350 of interest - $258.50 purely from the tax structure.

That gap narrows the lower your tax bracket goes, and disappears entirely around 17.5%, where the two are roughly equivalent. It's also not a full substitute - a PIE bond fund's unit price can move with interest rates, unlike a term deposit's fixed, locked-in return.