RWT vs PIR: Which Rate Taxes Your NZ Savings & Funds?

New Zealand taxes savings and investment income through two different systems, and which one applies depends on what you’re invested in, not how much you earn. Bank interest runs on RWT; PIE funds run on PIR. Mixing them up — or picking the wrong rate within each — is one of the most common reasons people get a surprise bill at year-end. Here’s how to tell them apart and choose correctly.

RWT vs PIR at a Glance

The headline difference: PIR is capped at 28%, even if your income would otherwise be taxed at 30%, 33% or 39%. That cap is the main reason PIE funds can be tax-efficient for higher earners.

RWT: Tax on Bank Interest

When your bank pays you interest, it deducts Resident Withholding Tax before the money hits your account. You tell the bank which RWT rate to use, and that rate should match your total taxable income:

• 10.5% — total income up to $15,600
• 17.5% — $15,601 to $53,500
• 30% — $53,501 to $78,100
• 33% — $78,101 to $180,000
• 39% — over $180,000

If you don’t pick a rate, the bank applies the default 33%. If you’ve never given the bank your IRD number, it must deduct at the no-notification rate of 45% — an expensive reason to make sure your IRD number is on file.

Worked example

You earn $60,000 in salary and $1,000 in bank interest. Your income sits in the 30% band, so you choose a 30% RWT rate. The bank deducts $300 on your interest, leaving you $700. Because 30% matches your marginal rate, there’s nothing more to pay or refund at year-end on that interest.

PIR: Tax on PIE Funds

KiwiSaver and most managed funds are Portfolio Investment Entities (PIEs). Their income is taxed at your Prescribed Investor Rate (PIR), which you give to the fund provider. Your PIR is set by the lower of your taxable income (excl. PIE income) in either of your last two income years:

For the 2025-26 and later income years:

• 10.5% — taxable income (excl. PIE) ≤ $15,600 AND combined (taxable + PIE) income ≤ $53,500, using the lower of your last two income years
• 17.5% — taxable income (excl. PIE) ≤ $53,500 AND combined income ≤ $78,100, using the lower of your last two income years
• 28% — anyone who doesn’t qualify for 10.5% or 17.5% (also the maximum — PIR never exceeds 28%, even at the 39% top PAYE bracket)

These are a separate instrument from the PAYE/RWT brackets, even though they now match. PIR thresholds are set by Income Tax Act 2007 schedule 6, table 1; the PAYE brackets by schedule 1, part A. The Taxation (Budget Measures) Act 2024 s 39 replaced the schedule 6 figures with the same cutoffs from the 2025-26 income year, so the coarser 3-tier PIR ladder now stops exactly where the PAYE bands do ($15,600 / $53,500 / $78,100). For 2024-25 they were misaligned — the PIR ladder was still $14,000 / $48,000 / $70,000 — which created a real trap for that one year (see below).

The two-year look-back means your PIR can lag your current income. That’s deliberate — it smooths out one-off income spikes.

Why the 28% cap matters (above $53,500)

If you earn $120,000, your salary is taxed up to 33% and your bank interest at 33%. But your PIE income is capped at 28%. For a higher earner, that’s a real saving versus holding the same assets directly. This is why PIE-structured funds are often more tax-efficient than direct shareholdings for people in the top brackets.

Below $53,500 there is simply no advantage, rather than a penalty. Under $15,600 both ladders sit at 10.5%; between $15,601 and $53,500 both sit at 17.5%. A PIE neither helps nor hurts you on tax at those incomes — the decision comes down to fees, fund quality and the convenience of excluded income. The one thing that does cost you is leaving a provider’s 28% default in place when you qualify for 17.5% or 10.5%.

Worked example: you earn $50,000 taxable income and hold $10,000 in a PIE term deposit earning $500 interest for the year.

• Via the PIE at your correct 17.5% PIR: $500 × 17.5% = $87.50 tax → $412.50 net.
• Via a standard RWT account at your correct 17.5% rate: identical, $412.50 net.
• Via the PIE left on a 28% default: $500 × 28% = $140 tax → $360 net, $52.50 worse for no reason.

One year where PIE genuinely lost: 2024-25

If you are looking back at 2024-25, the two ladders had not yet been aligned. The PAYE brackets moved on 31 July 2024 but the PIR thresholds did not move until 1 April 2025, so for that year taxable income between $48,001 and $53,500 carried a 28% PIR against a 17.5% PAYE/RWT rate — a genuine 10.5 percentage-point disadvantage to holding money inside a PIE. From 2025-26 that gap is closed and the crossover is back at $53,500, where the PAYE rate rises to 30% and the 28% cap starts working in your favour.

What If You Get the Rate Wrong?

This is where RWT and PIR used to differ sharply — and where the rules have improved.

• Wrong RWT rate: Too low and you’ll owe the difference at year-end; too high and it’s refunded. RWT is always squared up in your assessment.
• Wrong PIR: Too low and IRD will bill you for the shortfall. Too high is now also refundable through your end-of-year assessment — a change from the old rule where overpaid PIE tax from a too-high PIR was simply lost.

The practical takeaway: check your PIR every year. A PIR that’s too low costs you a bill; one that’s too high ties up money until your assessment refunds it.

Quick Decision Guide

1. Is it bank interest or a dividend? Use RWT — match the rate to your income, and make sure your IRD number is on file to avoid the 45% rate.
2. Is it a PIE (KiwiSaver / managed fund)? Use your PIR — check it against your last two years’ income, and remember it’s capped at 28%.
3. Unsure which your investment is? Ask the provider whether it’s a PIE. Sharesies, InvestNow and most KiwiSaver schemes are PIEs; a term deposit is not.

Work out your correct rate with our PIR calculator. For deeper dives, see choosing the right PIR for your PIE investments, how PIE funds are taxed and our full RWT explainer.