Our experts agree that it's important to understand how and why interest rates change when deciding the length of your Term Deposit. "When economic growth slows, interest rates are slashed to stimulate growth. As a result, all Term Deposit rates move into a lower range.

"On the other hand, when the economy is heating up, interest rates are lifted to cool the economy down and tame inflation. And in this case, Term Deposit rates move into a higher range," says Sabrina Delgado.

We don't need to look back far to see this in action and Sabrina shares some recent interest rates highs and lows:

• We saw interest rates hit historic lows during the COVID-19 pandemic. Interest rates were slashed to boost economic growth and Term Deposit rates fell below 1%.
• More recently, interest rates were hiked aggressively by the Reserve Bank of New Zealand (RBNZ) which, in turn, caused banks to increase interest rates and savers enjoyed Term Deposit rates above 5%.
• In August 2024 the RBNZ cut the OCR (official cash rate) to 5.25% marking a downward shift in interest rates, including Term Deposit rates. The RBNZ made a further cut in October 2024 to 4.75%.

The length of time you can commit your money to a Term Deposit will depend on your savings goals and your need to have cash on hand for emergencies and unexpected purchases, says Jeremy Smit.

"Historically, we’ve generally seen short Term Deposits offer lower interest rates, but provide greater flexibility in getting your money back sooner. While longer Term Deposits may offer higher rates, the trade-off is that your funds aren't accessible for longer," he says.

When rates change, it's a balancing act of maximising your returns while managing the risk of interest rates changing while your money is locked away, says Jeremy. "In a decreasing rates environment like we’re in now, short Term Deposits may offer higher rates, however, locking in your Term Deposits for longer periods at current rates can help manage the risk of earning lower returns if rates decline in the future," he says.

Once you've got a sense of your goals and budget, you can look to our Economists' interest rates commentary and forecasts to help you make an informed decision about the term length of your deposit.

Our Kiwibank Economists forecast that the RBNZ is returning toward a neutral cash rate, with more OCR cuts coming. "We're confident that interest rates will continue to fall into 2025 and 2026," says Sabrina.

But ultimately it all comes down to inflation and how hot the economy is running. Inflation peaked in June 2022 and since then we’ve seen it falling. "The RBNZ targets inflation between 1-3%, and by our forecasts, inflation should soon be back within the RBNZ’s target band and on its way to 2% in 2025," she says.