Term PIEs vs Term Deposits: The After-Tax Difference
A term PIE and a term deposit can advertise the same headline rate and pay you different amounts. The reason is entirely tax. Interest from a term deposit has resident withholding tax deducted at your own rate, which for individuals runs 10.5, 17.5, 30, 33 or 39 percent. A portfolio investment entity is taxed at your prescribed investor rate instead, and the highest prescribed investor rate is 28 percent.
So for anyone whose income puts them above 28 percent, the same headline rate produces more money in a PIE, because less of it is taken. For someone on a lower rate the advantage shrinks or disappears. That is the whole mechanism, and it explains why banks advertise both products side by side at rates that look almost identical.
The one sentence version
Term deposit interest is taxed at your RWT rate, up to 39 percent. A term PIE is taxed at your prescribed investor rate, which caps at 28 percent. If your rate would be 30, 33 or 39 percent, the PIE keeps more of the same return.
If you do not choose an RWT rate, your bank deducts at 33 percent. If you have not given them your IRD number at all, they deduct at 45 percent. Someone on a 17.5 percent rate who never filled in the form is losing a great deal to a default, and it is fixed in about two minutes through internet banking.
Why two products exist at all
A portfolio investment entity is a tax structure rather than a different kind of investment. A term PIE offered by a bank generally holds the same sort of thing a term deposit does, for the same sort of term, and the money is doing much the same work. What differs is how the return is taxed on the way to you: as attributed PIE income at your prescribed investor rate, rather than as interest with RWT deducted.
Because the top prescribed investor rate is 28 percent while the top RWT rate is 39, the structure is worth most to higher earners. This is not a loophole; it is how the regime was designed, and it is the reason the products are marketed at people who would otherwise pay 33 or 39 percent on their interest.
What this guide will not tell you
Which prescribed investor rate is yours. That is deliberate. Your PIR is worked out from your income across the last two tax years, and it is the lower of the two qualifying rates rather than just this year's figure, so it is genuinely person specific and it changes. Inland Revenue publishes a Find my prescribed investor rate tool that walks you through it, and using that is more reliable than any table reproduced elsewhere. Section 3 explains what happens if you get it wrong, which matters more than most people realise.
The two tax systems, side by side
| Term deposit | Term PIE | |
|---|---|---|
| How the return is taxed | Interest, with RWT deducted | Attributed PIE income, at your PIR |
| Rates available | 10.5, 17.5, 30, 33 or 39 percent | 10.5, 17.5 or 28 percent |
| Highest rate you can pay | 39 percent | 28 percent |
| If you choose no rate | 33 percent is deducted | Your provider applies a default, usually the top rate |
| If you give no IRD number | 45 percent is deducted | The top rate applies |
The row that decides everything is the third one. Two people can hold the identical product at the identical headline rate and keep different amounts, purely because one of them tops out at 28 percent and the other at 39.
What the gap is actually worth
Take $50,000 at a headline rate of 5 percent for one year, which is $2,500 of return before tax. The after tax result depends only on the rate applied to it.
Run the same numbers for someone on a 33 percent RWT rate and the deposit leaves $1,675, so the PIE advantage is $125. Run them for someone on 17.5 percent and there is no advantage at all: both are taxed at 17.5 percent, and $2,500 becomes $2,062.50 either way. The benefit is not a feature of the product, it is a feature of your tax rate.
Because the two are taxed differently, comparing headline rates tells you very little. A term deposit at 5.10 percent and a term PIE at 5.00 percent are not what they look like to a 39 percent taxpayer: the deposit leaves $1,555.50 on $50,000 and the PIE leaves $1,800. The higher advertised rate is the worse deal by a wide margin.
Where the advantage disappears
For anyone whose PIR and RWT rate would both be 10.5 or 17.5 percent, the tax treatment is identical and the PIE structure adds nothing on its own. At that point the decision comes back to the ordinary things: the rate offered, the term, whether you can break it early and what that costs, and how the interest is paid. Those matter for everyone and they are the whole decision for people on lower rates.
Your prescribed investor rate, and why it is not this year's income
A PIR is not simply your current tax rate. It is worked out from your income across each of the last two tax years, and the rate that applies is the lower of the two qualifying rates. That design is deliberate: one unusually high year does not automatically push you up a bracket if the other year was lower.
It also means the rate is not something you can reliably guess, and it can change from year to year without your income doing anything dramatic. Inland Revenue provides a Find my prescribed investor rate tool for exactly this reason, and it is the thing to use rather than an estimate. This guide deliberately does not reproduce the income thresholds, because the two year test means a static table is the wrong tool for the job.
If you give your provider a PIR that is too low, you have underpaid and Inland Revenue will require the difference, so the saving was never real. If you give one that is too high, you have overpaid, and historically that overpayment has not always been refundable in the way an ordinary overpayment would be. Check your PIR rather than guessing in either direction, and tell your provider when it changes.
The RWT side, which is easier to fix
Your RWT rate should match your income tax rate. If it is set too low you get a bill at the end of the year, and if it is too high you have lent the government money for nothing until you file. Two defaults are worth knowing because they are pure loss:
- No rate chosen: 33 percent. Someone whose real rate is 17.5 percent is having nearly twice as much deducted as they need to.
- No IRD number given: 45 percent. This is higher than any individual tax rate in New Zealand, and it exists to make giving your IRD number the obvious choice.
Both are usually fixable in internet banking under the account or tax settings, and the change applies to future interest rather than retrospectively. If you have several accounts across several banks, they are set separately, so an old account opened years ago can still be running on a default you have long since fixed elsewhere.
Things that have nothing to do with tax
Once the tax question is settled, the rest of the comparison is ordinary. Check the term and whether you can break it early, and what breaking costs, because that is where term products differ most. Check how often interest is paid and whether it compounds. Check whether the rate on offer is a special that requires a minimum deposit. And check who you are actually investing with, since a PIE is a fund structure and the protections around it are not automatically identical to a bank deposit.
Four savers, same money, different answers
Rachel earns well above $180,000, so her RWT rate is 39 percent and her PIR would be 28 percent. She has $50,000 to put away for a year at 5 percent.
Result: the term deposit leaves her $1,525 after tax and the PIE leaves $1,800. The PIE is worth $275 more on the same money, and the gap grows with the amount and the rate. For her, the structure is the single largest factor in the decision.
Hemi's income puts him at 17.5 percent for both RWT and his PIR. Same $50,000, same 5 percent, same year.
Result: $2,500 of return, taxed at 17.5 percent either way, leaving $2,062.50 in both. The PIE offers him nothing on tax, so he should choose purely on rate, term and break conditions. Marketing that presents a PIE as better for everyone is not describing his situation.
Ana is a 39 percent taxpayer choosing between a term deposit at 5.10 percent and a term PIE at 5.00 percent, on $50,000 for a year.
Result: the deposit returns $2,550 before tax and $1,555.50 after. The PIE returns $2,500 before tax and $1,800 after. The product with the lower advertised rate leaves her $244.50 better off, which is why comparing posters is not comparing offers.
Tomas opened a savings account years ago and never gave his IRD number. His real rate would be 17.5 percent. He earns $2,500 of interest in a year.
Result: 45 percent is deducted, which is $1,125, leaving $1,375. At his correct 17.5 percent rate the tax would have been $437.50. The difference of $687.50 is recoverable when he files, but he has gone without the money all year for no reason. Adding an IRD number takes minutes.
What to do with this
Sources
Checked against Inland Revenue on 10 August 2026:
- Inland Revenue, Using the right RWT rate: the 10.5, 17.5, 30, 33 and 39 percent rates for individuals, the 33 percent default where no rate is chosen, and the 45 percent rate where no IRD number is given.
- Inland Revenue, Find my prescribed investor rate: that the PIR is based on income in each of the last two tax years, and the tool for working out your own.
- Inland Revenue, Multi-rate PIEs and prescribed investor rates: the three prescribed investor rates of 10.5, 17.5 and 28 percent.
The income thresholds that decide which PIR applies to you are deliberately not reproduced here. Inland Revenue serves them through its own Find my PIR tool because the rate depends on two separate tax years and on your PIE income as well as your taxable income, and a static table is the wrong instrument for a test like that. Use the tool.
This guide is general information, not tax or financial advice. Your own circumstances decide the answer, and an accountant or authorised financial adviser can confirm your rates and whether either product suits you.
Related tools
- KiwiSaver vs Term Deposit vs Shares: comparing where savings sit, after tax.
- PAYE Calculator: working out the income tax rate your RWT rate should match.
- Compound Interest Calculator: what compounding adds over a longer term.
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