Term deposit alternatives in New Zealand, ranked by risk

If a term deposit’s roughly 4% no longer does the job, the realistic term deposit alternatives in NZ are Kiwi Bonds, term PIE funds, LGFA and corporate bonds, finance company deposits, peer-to-peer lending, pooled mortgage funds and co-funded secured loans. Each one pays more, or is taxed less, because it asks you to accept something a bank deposit doesn’t.

Rates below are as at late September 2026. This guide comes from HomeSec Business Finance, a private business lender lending since 2004, with its New Zealand office in Auckland. We open some loans to wholesale investors, so we have an interest in the last option, and we set out its drawbacks as plainly as the rest.

What does a term deposit earn in New Zealand today?

Twelve months with one of the big banks earns about 4.00% to 4.05% p.a. in late September 2026, and Rabobank leads the bank tables at 4.15%. Rates are edging up again: the Reserve Bank took the Official Cash Rate to 2.75% on 2 September 2026, its second increase of the year after a low of 2.25%.

What you get is certainty. The rate is locked, the balance never changes in price, and the Depositor Compensation Scheme, running since 1 July 2025, protects up to $100,000 per depositor at each deposit taker.

What you give up shows in the after-tax numbers. Take NZ$250,000 in a 12-month deposit at 4.05%. It earns NZ$10,125 before tax. At the 39% RWT rate that becomes about NZ$6,176, or 2.47%, which is below the 4.1% inflation the Reserve Bank reported for the June 2026 quarter. Only NZ$100,000 of that balance is covered at a single bank. The money is tied up too: BNZ, for one, needs at least 31 days’ notice to break a term deposit early, and pays a reduced rate when it does.

Which term deposit alternatives carry the least risk, and which the most?

Each line carries more risk than the one above it, although the kind of risk changes as much as the amount.

Do Kiwi Bonds beat a bank term deposit?

Not on income, at the moment. New Zealand Debt Management issues Kiwi Bonds for the Government over six months, one, two or four years, up to $500,000 in any one issue. Since 25 August 2026 they have paid 3.00%, 3.25%, 3.50% and 3.75% for those terms, so a one-year Kiwi Bond trails a big-bank deposit by roughly three-quarters of a percentage point.

What Kiwi Bonds offer is Crown backing on the whole amount, not just the first $100,000. Tradeable NZ Government bonds are just as creditworthy, but their price drops when interest rates rise, so with the OCR climbing, selling early could mean crystallising a loss.

Our take: the strongest backing available, paid for with the lowest yield.

Why do investors choose term PIE funds?

For the tax, not the headline rate. A term PIE behaves like a fixed-term deposit but is set up as a portfolio investment entity. The income is taxed at your prescribed investor rate instead of your marginal rate, and for individuals the PIR is 10.5%, 17.5% or 28%. Someone on the 39% rate keeps 72 cents of every dollar of interest rather than 61.

Family trusts can gain as well. A trustee can elect a 28% PIR as a final tax rather than paying the 39% trustee rate on retained income. The Reserve Bank says cash and term PIEs may fall within the Depositor Compensation Scheme and suggests confirming with the provider.

Our take: much the same investment as a deposit, taxed more lightly.

What do LGFA and corporate bonds add?

The Local Government Funding Agency borrows on behalf of councils. Its bonds trade on the NZX Debt Market beside issues from banks, power companies and infrastructure groups; interest.co.nz tracks their indicative yields.

A corporate issuer pays more than the Government, and the weaker its credit, the wider the gap. In return, prices shift with interest rates and sentiment about the issuer, and smaller issues can be hard to sell quickly. The Reserve Bank lists bonds and other tradable products as outside the deposit scheme.

Our take: useful for spreading a portfolio, but the lift in income is modest.

Are finance company deposits worth the extra rate?

Finance companies, building societies and credit unions that take deposits usually pay a little more than the banks. On 17 September 2026 the leading 12-month rate was 5.70% from Gold Band Finance, ahead of Mutual Credit Finance at 4.85% and General Finance at 4.55%. Licensed non-bank deposit takers now sit inside the scheme, to the same $100,000 per depositor.

That premium has a history behind it. The FMA records that 51 finance companies went into receivership or liquidation, or put repayments on hold, between 2006 and 2012, and RNZ put the damage at about $3 billion owed to around 200,000 investors. Today’s scheme did not exist then, and it still does nothing for the part of a balance above $100,000. Our account of New Zealand finance company collapses looks at why so many failed.

Our take: a small step up that makes most sense inside the $100,000 limit.

Can peer-to-peer lending replace a term deposit?

Only in part. Peer-to-peer platforms advertised 6.00% to 6.75% in September 2026, but nothing is deposited. The platform lends your money on to its borrowers and relies on its own credit checks and collections to get it back.

So you carry two layers of risk, the borrowers and the platform, and the Depositor Compensation Scheme covers neither.

Our take: a higher rate, with less sight of who actually has your money.

What went wrong with mortgage funds in New Zealand?

A pooled mortgage fund gathers money from many investors and lends it wherever the manager chooses. You hold units in the fund rather than a stake in a named loan, and you are paid whatever remains after the manager’s fees and margin.

New Zealanders have seen the result. In July 2008 the Guardian Trust Mortgage Fund, with $249 million from about 3,700 investors, stopped withdrawals, and a wind-up was proposed the following January. In October 2008 AXA froze three mortgage funds holding $225 million. More recently, RNZ reported that investors in Du Val’s Mortgage Fund were unlikely to benefit from anything recovered in the group’s statutory management.

Our take: more income than a deposit, but the manager decides what your money is lent against and when you can have it back. See direct mortgage investment vs pooled funds for the structural difference.

Where does co-funding a secured loan sit on the ladder?

At the top for income, with its own risks. You put money into one particular loan beside HomeSec’s own funds. Your name goes on the mortgage, registered with LINZ against your exact share, and repayments of principal and interest go directly into your bank account.

Rates run from 12% to 18% p.a. and are fixed loan by loan in each due diligence pack. Terms are usually 1 to 12 months. The security is a registered first or second mortgage over residential or commercial property in New Zealand, lent to no more than 80% of value on residential and less on commercial. HomeSec puts its own capital into every loan it offers to investors, and does not lend on construction or development.

Go back to the NZ$250,000 example. Placed in one loan at an illustrative 14% p.a. for six months, it would earn NZ$17,500 in interest before tax, against about NZ$5,063 from six months in a 4.05% deposit. Interest is taxable either way; your accountant will confirm how RWT applies to you.

The drawbacks deserve equal space:

• Nothing like deposit cover. What protects you is the property, the equity beneath the loan and the legal documents.
• One loan, one borrower, one property. Because you set the amount for each loan, from NZ$100,000, a larger sum can be split across several loans.
• Delays happen. Borrowers sometimes repay late. If a loan defaults, the Property Law Act 2007 requires a notice giving at least 20 working days to fix the problem before a mortgagee sale can begin, and a sale then takes months.
• Wholesale only. You must qualify as a wholesale investor, most often through an eligible investor certificate.

Access works differently too. There is no pool to freeze: each loan is repaid on its maturity date, and if you need your capital sooner, HomeSec will purchase your share and return your principal when you ask. Why the rate sits so far above a deposit (short terms, quick decisions, established businesses paying for speed) is set out in how our returns are generated.

Our take: the highest secured income on this list, for wholesale investors who want to pick each loan themselves.

Which option suits your money?

Three questions help.

1. When will you need it? Money earmarked for a known date inside a year needs a matching term and easy access before it needs yield.
2. How much backing must you have? If Crown or deposit scheme cover is non-negotiable, stay with Kiwi Bonds, bank deposits and term PIEs, and keep no more than $100,000 with any one deposit taker.
3. How involved do you want to be? A pooled fund makes the lending decisions for you. A co-funded loan shows you the property, the LVR, the purpose and the exit first, and lets you say no.

Few investors pick just one. A common mix is cash for flexibility, shares for long-term growth, and a portion in secured income between the two. Our guide to where to invest $1 million in New Zealand works through an example.

What should you do next?

A term deposit is a reasonable starting point, but not necessarily home for every dollar. To see a live example from the top of the ladder, with the property, LVR, term and rate set out, register your interest. Our Funding Manager will contact you and can send a current loan pack, with no obligation to take part.