If you earn interest on a term deposit, savings account, or call account at a New Zealand bank, that interest is taxable. Your bank deducts Resident Withholding Tax (RWT) automatically before paying you — but if you have the wrong RWT rate set, you may owe more at year end or be overpaying throughout the year.
Interest earned on term deposits and savings accounts is taxed via Resident Withholding Tax (RWT), deducted at source by your bank. The correct RWT rate matches your marginal income tax rate: 10.5%, 17.5%, 30%, 33%, or 39%. If you have the wrong rate, the difference is settled in your end-of-year tax assessment. You do not need to file a separate return if your only income is salary and interest — IRD's automatic assessment handles it.
How RWT Works on Interest
When your bank pays you interest, it deducts RWT and pays it to IRD on your behalf. You receive the net amount. At year end:
- Your bank files an interest income return with IRD listing the gross interest and RWT deducted
- IRD includes this in your automatic tax assessment
- Any under- or over-deduction of RWT is settled in the assessment
Example:
- Term deposit earns $2,000 gross interest
- RWT at 33%: $660 deducted by bank
- You receive: $1,340 net
- At year end: IRD confirms the right rate — if correct, no further action needed
RWT Rates for Interest Income
| Your marginal income tax rate | Correct RWT rate |
|---|---|
| 10.5% (income under $14,000) | 10.5% |
| 17.5% (income $14,001–$48,000) | 17.5% |
| 30% (income $48,001–$70,000) | 30% |
| 33% (income $70,001–$180,000) | 33% |
| 39% (income over $180,000) | 39% |
Default rate: If you have not provided your IRD number and tax rate to your bank, a default RWT rate of 45% (non-declaration rate) applies — deliberately punitive to encourage correct registration.
How to Set Your RWT Rate with Your Bank
Contact your bank and provide:
- Your IRD number
- Your correct RWT rate (based on your expected marginal income tax rate)
You can do this online through your bank’s internet banking platform, in branch, or by phone. Most banks let you update your RWT rate at any time.
Set this up for every account — term deposits, savings accounts, PIPs (notice saver accounts). Each product may hold a separate rate.
NZ vs Overseas Banks
| Bank type | RWT treatment |
|---|---|
| NZ-registered banks (ANZ, ASB, BNZ, Westpac, Kiwibank) | Deduct RWT automatically |
| Overseas bank accounts | No RWT deducted — declare interest in your IR3 or automatic assessment |
If you earn interest from an overseas bank, you must declare it. IRD does not receive automatic information from overseas banks (though information exchange agreements mean IRD increasingly has access to overseas account data under the Common Reporting Standard).
Term Deposits vs Savings Accounts — Tax Timing
| Account type | When interest is taxed |
|---|---|
| At-call savings account | When interest is credited (usually monthly or annually) |
| Term deposit — interest paid at maturity | When it is paid to you (end of term) |
| Term deposit — interest paid periodically | When each payment is made |
| Rolled-over term deposits | Interest at each rollover point is a taxable event |
If your term deposit matures and rolls over automatically, the interest earned at rollover is taxable in that tax year even if you do not withdraw it.
Does Interest Income Affect Anything Else?
Working for Families
Interest income is included in “family scheme income” for Working for Families calculations. Significant interest earnings from term deposits may reduce your WFF entitlements.
Student Loan Repayments
Interest income over $1,500 per year is subject to student loan repayment (12% on the amount over $1,500). This appears in your end-of-year assessment.
KiwiSaver
Interest on bank accounts does not affect KiwiSaver contributions — these are based on employment income only.
Tax on Term Deposits vs PIE Funds
A common question: should you put money in a term deposit or a PIE-structured savings fund?
| Feature | Term deposit | PIE savings fund |
|---|---|---|
| Tax rate | Your marginal rate (up to 39%) | Your PIR rate (capped at 28%) |
| High earner saving (33% vs 28%) | 33% on interest | 28% maximum |
| High earner saving (39% vs 28%) | 39% on interest | 28% maximum |
| Access | Locked until maturity | Usually daily access (fund dependent) |
| Return certainty | Fixed rate | Variable (fund performance) |
For earners in the 33% or 39% bracket, PIE-structured funds (like those offered by Simplicity, Kernel, InvestNow) can save 5–11 percentage points in tax on investment returns vs a straight term deposit. This is the same PIR advantage that applies to KiwiSaver.
Frequently Asked Questions
My bank is deducting RWT at 33% but I only earn $40,000. What do I do?
Update your RWT rate with your bank to 17.5%. Going forward, the bank will deduct at the lower rate. The overpayment to date will be refunded in your end-of-year automatic assessment.
I didn’t give my bank my IRD number. What happens?
The default (non-declaration) RWT rate of 45% applies — you will be overtaxed. Update your bank with your IRD number and correct rate immediately to stop the over-deduction. Past over-deductions will be refunded at year end.
I have a joint term deposit with my spouse. How is the interest split?
Joint account interest is split equally (50/50) unless you and your bank have documented a different ownership arrangement. Each person declares their share.
Do I pay tax on the interest portion inside a KiwiSaver fund?
No — KiwiSaver funds are PIEs. Returns (including interest earned within the fund) are taxed at your PIR rate (10.5%, 17.5%, or 28%) and handled entirely within the fund. This does not appear as separate interest income in your assessment.