Term Deposits vs Investment Portfolios: What’s Better for Your Money Right Now?

When interest rates are high, term deposits feel like a safe, easy win. But what happens when they start falling — as they have recently in New Zealand?

With the Reserve Bank cutting the Official Cash Rate (OCR) in April 2025 and more cuts expected later this year, term deposit rates are now sliding downward.

This shift is prompting many Kiwis to rethink their savings strategy — and ask whether an investment portfolio might now offer more value over time.

Let’s Start with the Basics

Term Deposits:
You lock your money away for a fixed time (e.g. 6 or 12 months or longer) in return for a fixed interest rate. Safe, predictable, but now with lower returns.

Investment Portfolio:
A mix of assets like shares, bonds, property funds and cash. Returns can vary in the short term, but with good diversification and a longer time horizon, portfolios have historically delivered stronger growth.

Why Term Deposits Are Becoming Less Appealing

1.      Rates Are Falling
With the OCR dropping and banks facing less pressure to compete for deposits, term deposit rates are steadily declining. That $100,000 deposit that earned $6,000 a year ago might now earn closer to $3,900 — and potentially less soon.

2.      Real Returns Are Shrinking
Inflation, even when moderate, chips away at low interest earnings. After tax and inflation, your “safe” return could effectively be zero — or even negative in real terms.

Value Tip: It’s not just what you earn — it’s what your money can still buy. Preserving purchasing power is essential for ensuring your money keeps up with rising costs.

Where Investment Portfolios May Offer More

1. Potential for Long-Term Growth
Portfolios aren’t locked into fixed returns. Over time, growth assets like shares have outperformed cash-based investments — particularly over 5+ year periods.

2. Greater Flexibility
Unlike term deposits, investment portfolios can be tailored to your goals and adjusted over time. You can access your funds (with some planning), spread risk, and rebalance as needed.

3. Tax Efficiency
Some portfolios offer excellent tax efficient ways of investing. Exposure through the use of Portfolio Investment Entity (PIE) funds — common in NZ portfolios — can potentially improve your after-tax returns. (we always recommend you seek independent tax advice from a specialist).

How to Decide What’s Right for You?

It’s not about choosing one over the other. Both tools have their place — it depends on your goals: this is where working with a financial adviser with experience in comprehensive financial planning can be invaluable.

Final Thought: Playing It Safe Isn’t Always the Safest Option

Term deposits have their role — but in a falling-rate environment like we’re seeing in New Zealand, relying on them alone could hold you back. If your money is meant to serve you in the long term, you’ll most likely want some