How tax works on term deposit interest
Interest from a New Zealand bank account or term deposit is taxable income. Your bank takes the tax off before it pays you. This is called resident withholding tax, or RWT.
The bank deducts RWT at the rate you choose. If you haven't chosen one, it uses 33%. If you haven't given the bank your IRD number, it must use the non-declaration rate of 45%.
At the end of the tax year, Inland Revenue squares up your income to check you've paid the right amount. If your RWT rate was too low you may get a tax bill. If it was too high, the extra may come back as a refund.
Choosing your RWT rate
Pick the rate that matches your total taxable income for the year, including the interest. These are the rates from 31 July 2024:
| Your total taxable income | RWT rate |
|---|---|
| Up to $15,600 | 10.5% |
| $15,601 to $53,500 | 17.5% |
| $53,501 to $78,100 | 30% |
| $78,101 to $180,000 | 33% |
| $180,001 and over | 39% |
| No IRD number given | 45% |
A joint account can only have one RWT rate. Inland Revenue's examples pick the rate that stops the higher earner getting a tax bill at the end of the year. Companies can choose 28%, 33% or 39%, and pay 28% if they don't choose.
Worked example: $20,000 at 4% for 12 months
- Gross interest: $20,000 × 4% = $800
- RWT at 33%: $800 × 33% = $264
- Interest after RWT: $536, so you finish with $20,536
- That's an after-tax rate of 2.68% a year
- At 17.5% RWT the same deposit leaves you $660 after tax
Paid at maturity, monthly or compounding
With interest paid at maturity, you get it all at the end of the term. Paid out monthly gives you the same total, spread across the term, while the deposit stays the same. Compounding adds each month's interest to the deposit, after RWT, so it starts earning interest too. Over 12 months at 4% and 33% RWT, compounding turns $536 into $542.63. The gap grows with bigger amounts and longer terms.
PIE term deposits
Some banks offer term deposits run as a portfolio investment entity, or PIE. These are taxed at your prescribed investor rate (PIR) instead of your RWT rate. For New Zealand resident individuals the PIR is 10.5%, 17.5% or 28%. It is based on your income in the last two tax years.
The top PIR is 28%, compared with 33% or 39% RWT. If you're on a 33% or 39% RWT rate, a PIE deposit at the same rate leaves you more after tax. To compare one, pick the RWT rate closest to your PIR in the calculator and enter the PIE rate. For 28%, work it out by hand: interest × 0.72.
Saving for retirement instead?
KiwiSaver calculator →Questions people ask
How much tax do I pay on term deposit interest in NZ?
It depends on your RWT rate: 10.5%, 17.5%, 30%, 33% or 39%, based on your total taxable income. The bank deducts it before paying you. If you don't choose a rate it uses 33%, and 45% if it doesn't have your IRD number.
What RWT rate should I choose?
The one that matches your total taxable income for the year. Up to $15,600 is 10.5%, $15,601 to $53,500 is 17.5%, $53,501 to $78,100 is 30%, $78,101 to $180,000 is 33%, and $180,001 and over is 39%.
How much interest will I earn on $20,000?
At 4% for 12 months, $800 before tax. After 33% RWT that's $536, and after 17.5% RWT it's $660. Enter your bank's rate in the calculator for your own figure.
Is compounding better than interest at maturity?
Yes, slightly, because each month's interest starts earning interest too. On $20,000 at 4% for 12 months with 33% RWT, compounding gives $542.63 after tax against $536 at maturity.
What is a PIE term deposit?
A term deposit run as a portfolio investment entity. It's taxed at your prescribed investor rate of 10.5%, 17.5% or 28% instead of your RWT rate. That helps most if your RWT rate is 33% or 39%.
Is my information saved?
No. The sums run in your browser. Your inputs are kept in the page address so you can bookmark or share a result, and nothing is stored on a server.