The short version
Term deposits are bank contracts protected up to $100,000 per depositor per institution under the Depositor Compensation Scheme. Bonds are tradeable debt issued by companies and banks, generally paying a higher rate to compensate for credit risk.
If capital protection is your priority, term deposits win. If you want more income and can accept issuer risk, bonds usually pay materially more over the same term.
Rate comparison
Across current New Zealand offers, NZD senior corporate bonds on KiwiBonds show coupons from about 3.55% to 6.78% p.a., while five-year bank term deposits sit closer to 4.30% to 4.80% p.a.
On a $100,000 investment over five years, a 1.5% margin is roughly $7,500 of extra gross income before tax and compounding.
Access to your money
Breaking a term deposit early typically triggers a reduced interest rate and a notice period. Quoted bonds can be sold on the NZX Debt Market on any trading day, though the price you get depends on market rates at the time.
- Term deposit: fixed rate, early withdrawal penalties apply.
- Bond: fixed coupon, sell at market price, no penalty but price risk.
- Both: full face value returned if held to maturity, subject to issuer solvency.
Risk and protection
The Depositor Compensation Scheme covers eligible bank deposits up to $100,000. Bonds are not covered — your capital depends on the issuer continuing to pay. That is why credit ratings and ranking matter so much when picking a bond.
Who each suits
A simple way to frame the choice.
- Emergency or short-horizon money: term deposit or on-call savings.
- Income you can lock away 3–7 years: investment-grade bonds.
- Larger portfolios: a ladder that blends both, staggered by maturity.
Frequently asked questions
Are bonds riskier than term deposits?
Generally yes. Bonds carry issuer credit risk and market price risk, and they are outside the Depositor Compensation Scheme.
Can I build a bond ladder?
Yes. Buying bonds with staggered maturities gives you regular access to capital while keeping most of the money earning higher fixed rates.
Which pays more after tax?
Both are taxed as interest income with RWT deducted, so the higher gross rate usually stays higher after tax.
What is the minimum for a bond?
Most NZ retail bond offers start at $10,000, similar to larger term deposit tiers.