If you have a decent chunk of cash sitting in a bank account, it may be time to check what it’s actually earning.

For years, many of us have treated our bank as the obvious place to park spare cash.

It’s convenient. It’s familiar. And if you’ve been with the same bank for 10, 20 or even 30 years, moving money can feel like an unnecessary hassle.

But there’s a problem with that approach.

The interest rate on your savings can vary enormously depending on where you keep your money.

And the difference is real money.

The “set and forget” savings trap

The latest comparisons from interest.co.nz show just how much rates can vary across the market.

Some ordinary savings accounts at the major banks pay surprisingly little, while other savings products and notice accounts offer considerably more.

Term deposits are more competitive, but even here, rates vary depending on the provider and the length of time you’re prepared to lock your money away.

As at August 2026, major-bank term deposit rates are generally sitting around the high-3% to low-4% range, depending on the term. Some smaller deposit takers offer more, with interest.co.nz currently showing rates above 4% at a number of institutions.

That doesn’t mean you should automatically move your money to the highest rate.

But it does mean you should know what you’re currently being paid.

Let’s put some dollars around it

Imagine you have $50,000 sitting in a low-interest savings account.

If you’re earning just 0.25%, that’s approximately:

$125 a year before tax.

At 2.5%, that same $50,000 would generate:

$1,250 a year before tax.

That’s a difference of $1,125 a year.

With $100,000 sitting in cash, the difference becomes $2,250 a year.

And with $250,000, you’re potentially talking about $5,625 a year.

That’s not investment magic.

It’s simply making sure your cash isn’t being paid a rate that belongs in another era.

But there’s another option: term deposits

If you don’t need immediate access to all of your money, it’s worth looking at term deposits too.

They offer something that investments can’t promise: certainty about the interest rate for the agreed term.

That’s valuable.

If you know you won’t need $50,000 for the next year, locking it away at a competitive rate can make perfect sense.

But there’s a trade-off.

Your money is tied up, and your return is capped.

Current interest.co.nz comparisons show one-year term deposit rates around the 4% mark at a number of banks, with some institutions offering more. Rates vary according to provider, term and eligibility.

So $50,000 earning 4% would produce approximately:

$2,000 in interest over a year before tax.

That’s a very different proposition from $125.

What happens after tax and inflation?

The inflation problem

A 4% interest rate sounds pretty good. But the headline rate isn’t what you get to spend. Tax takes a slice of the interest, and inflation gradually reduces what your money can buy.

For someone paying tax at 33%, 4% interest leaves roughly 2.68% after tax. If inflation is running at 2.5%, your real return is suddenly very modest. That’s before considering any fees or the opportunity cost of having that money sitting in a low-growth asset.

This doesn’t make term deposits bad. Far from it.

Term deposits can be excellent for money you need to protect and for money you know you’ll need within a defined timeframe.

The mistake is assuming that because something is safe, it is automatically the best place for all your money. It isn’t.

Sorted makes the same distinction: bank deposits can be useful for regular interest income and relatively short-term access, but tax and inflation can eat into the value of the interest earned. For investors seeking greater long-term growth and who can tolerate more risk, investments such as shares and managed funds may be more appropriate.

So what about managed funds?

This is where the conversation gets more interesting. vA managed fund pools your money with other investors and invests it across a portfolio of assets.

Depending on the fund, that might include shares, property, bonds, cash or a combination of these. The big advantage is diversification.

Rather than putting all your eggs in one bank account, you can own a slice of hundreds or even thousands of investments through a single fund. KiwiSaver is actually a managed fund structure, and the same basic principle applies to many managed funds outside KiwiSaver.

And unlike a term deposit, the potential return isn’t limited to the interest rate on offer.

Your return can come from income and capital growth.

That means there is greater potential for your money to grow over the long term. But — and this is important — there is no guarantee.

The value of a managed fund can fall. Sometimes significantly.

That’s the price you pay for having exposure to growth assets such as shares and property.

It’s not really about “which pays more?”

This is the question I think we should be asking:

“When will I need this money?”

If you need it next year, putting it into a high-growth managed fund probably doesn’t make much sense. You don’t want to discover that your $100,000 has fallen to $85,000 just when you need to spend it.

A competitive savings account or term deposit could be much more appropriate. But what if you don’t need the money for 10, 15 or 20 years?

That’s a completely different proposition. You can potentially ride out the ups and downs of financial markets and allow the power of compounding and long-term growth to work in your favour.

Sorted’s investment guidance reflects this relationship between risk and timeframe.

Conservative funds are generally designed for investors with horizons of around four to five years. Balanced funds are generally suited to around six to eight years. Growth funds are generally aimed at investors with nine to 12 years or more, while aggressive funds are designed for horizons of 13 years or longer.

The longer your timeframe, the more capacity you generally have to tolerate short-term volatility.

The potential return comes with a price

This is where I think investment conversations sometimes go wrong. It’s tempting to look at historical managed-fund returns and say:

“Why would anyone bother with a term deposit?”

But that ignores risk. A managed fund doesn’t promise you 6%, 7% or 8% every year.

One year might be strongly positive. Another could be negative.

The important question is what happens over the whole investment period, not whether you beat a term deposit in any particular year.

For example, Sorted’s Smart Investor data shows that managed funds can have very different five-year outcomes depending on their investment mix, and importantly, those returns are accompanied by different levels of risk. Higher potential returns generally require accepting greater uncertainty.

That’s the bargain.

Your money needs a job

This is perhaps the most important point of all. Not every dollar needs to be invested in the same place.

You might have:

Emergency money
→ Keep it accessible.

Money needed in the next one to three years
→ Savings accounts and term deposits may be appropriate.

Money needed in five to eight years
→ A diversified portfolio may be worth considering, depending on your risk tolerance.

Money you don’t expect to need for 10+ years
→ Growth assets and diversified managed funds may offer considerably more potential to grow your purchasing power.

The mistake is treating all cash as if it has the same purpose.

It doesn’t. Some cash is there for security. Some is there for a planned purchase.

And some is simply sitting there because nobody has stopped to decide what it should be doing.

The real cost of doing nothing

Let’s imagine you’ve got $250,000 sitting in cash. If you can earn 4% in a term deposit, that’s around $10,000 of interest before tax. That’s not insignificant.

But after tax at 33%, you’d have approximately $6,700. And if inflation were 2.5%, the real increase in your purchasing power would be much smaller again.

Now imagine that same $250,000 is money you don’t need for 15 years. The question changes. You are no longer simply asking:

“How much interest can I earn?”

You’re asking:

“How much could this money potentially grow if I invested it in a diversified portfolio and left it alone for the long term?”

That’s a much more interesting question. And it is where managed funds enter the conversation.

But don’t confuse potential with certainty

There is a reason term deposits remain popular. They are simple.

They are predictable. And for the right purpose, they’re incredibly useful. Managed funds are different. Your balance will move around.

Sometimes you’ll see a number on your statement that you don’t like. And if you sell at the wrong time, you can turn a temporary fall into a permanent loss.

That’s why the answer isn’t to abandon term deposits.

It’s to stop thinking of cash, term deposits and managed funds as competing products.

They do different jobs.

The five-minute money check

Before you do anything with your savings, ask yourself five questions:

1. What interest rate am I actually earning?

Don’t assume. Check.

2. How much of my money needs to be accessible?

Keep enough liquid for emergencies and near-term spending.

3. What is my timeframe?

One year and 15 years are completely different investment propositions.

4. What am I earning after tax and inflation?

The headline interest rate isn’t the number that matters.

5. Is my money doing the job I need it to do?

Safety? Income? A future purchase? Long-term wealth creation?

Once you answer that, the appropriate home for the money becomes much clearer.

The takeaway

You don’t need to become a professional investor to make your money work harder. But you do need to stop assuming that the bank you’ve always used is necessarily giving you a competitive deal.

And you need to stop looking at a 4% term deposit rate and thinking that’s the same thing as a 4% increase in your wealth. It isn’t. Tax takes a slice.

Inflation takes another. And the opportunity cost of keeping long-term money in low-growth assets can be significant.

At the same time, don’t make the opposite mistake and assume that managed funds are automatically better.

The right investment depends on the job your money needs to do.

For short-term certainty, cash and term deposits can be hard to beat. For long-term wealth creation, a diversified managed fund may offer considerably greater potential — but with greater risk and no guarantee of return.

And that’s where things get interesting…

If you’ve got a substantial amount of money sitting in savings accounts or term deposits, the next question isn’t simply:

“Where can I get another half a percent?”

It’s:

“Could some of this money be doing a better job of building my wealth?”

That’s a much bigger conversation.

Next week, I’ll take a closer look at managed funds versus term deposits — including the potential returns, the risks, the fees, tax, inflation and the timeframes that should influence which one you choose. Because getting your money into the right place isn’t about chasing the highest return.

It’s about matching your money to your life.