With New Zealand’s Official Cash Rate (OCR) falling by .50% to 2.5%, and many economists predicting that it will continue to fall, term deposit holders may soon find their returns slipping further. Lower interest rates mean less income for savers, prompting many to ask whether their money could be working harder elsewhere.
One alternative worth considering is a managed fund, which offers the potential for stronger long-term growth and broader diversification than a traditional term deposit.
Generate launched the Fixed Interest Managed Fund in April of this year. It invests exclusively into the Generate Fixed Interest Wholesale Fund, which primarily invests in high-quality bonds, and is designed to deliver steadier, more predictable returns than shares.
What are the returns on conservative managed funds?
According to Morningstar data to the end of August 2025, when taking into account the performance history of the Generate Wholesale Fixed Interest Fund, the fund ranked 1st out of 21 funds in the New Zealand Bonds category for three-year returns, delivering a tidy 6.50% annualised return for investors* (Important note: this primarily reflects the performance history of the Generate Wholesale Fixed Interest Fund, established in November 2021).
“The [Fixed Interest] fund’s allocation into bonds means it has a relatively low risk indicator score, of 3 [out of 7]. This makes it appealing to some conservative investors, as it provides a familiar level of stability, but with the added benefit of professional management, diversification, and the potential to outpace inflation over time.” said Ayrton Oliver, Generate Fixed Interest Portfolio Manager.
Generate's Conservative Managed Fund also performed strongly against its peers, ranking 2nd out of 15 funds in the NZ OE Multisector - Conservative category to end August 2025, with a return of 7.01% annualised over three years.
“Despite a few periods of market volatility, this year has been relatively strong for investments overall. As active managers, we’ve been able to respond to market shifts and deliver solid returns for our members, even in the more conservative categories.” said Oliver.
Key differences between managed funds and term deposits
While managed funds can be an attractive alternative, it’s important to recognise the key differences compared to term deposits. With a term deposit, savers know exactly what interest rate they will earn for the agreed period. Managed fund returns, on the other hand, are not guaranteed and can fluctuate in value depending on market performance. Managed fund returns have the potential to be negative as well as positive. But over the long term they generally have the potential to outpace inflation and deliver stronger growth.
Term deposits generally carry lower volatility but offer little flexibility, while managed funds can provide easier access to your money, investors can withdraw their money at any time, without lock-in periods or withdrawal fees — and with active management, professional oversight, and diversification, investors can benefit from opportunities not available in traditional deposits.
As managed funds are PIE funds an investor can also benefit through a capped tax rate of 28% versus income tax rates of up to 39% on interest from term deposits.
Oliver noted that managed funds come in many forms, and while not all are directly comparable to term deposits due to their varying levels of equity exposure and risk, investors should seek expert guidance before investing — especially if they are moving from a term deposit — to ensure they fully understand the risks.