Private Credit vs Term Deposits — Understanding the Trade-offs

For many New Zealand wholesale investors, the comparison between term deposits and private credit comes down to a simple question: what am I giving up to earn a higher return?

It is a good question. The answer is more nuanced than most discussions acknowledge.

What Term Deposits Offer

Term deposits are straightforward. You deposit capital with a registered bank for a defined period — typically three months to five years — and receive a fixed interest rate. The bank is regulated by the Reserve Bank of New Zealand and deposits are covered by the Crown Retail Deposit Guarantee Scheme for amounts up to NZD 100,000 per depositor per institution.

The trade-off is return. At current rates, competitive six-month term deposits sit in the 4–5% range. In a world where inflation is expected to reach 4.2% in mid-2026, that represents a very thin real return — and in some scenarios, no real return at all.

What Private Credit Offers

Private credit — secured lending to businesses and property owners — sits at a different point on the risk-return spectrum.

Capital Connect No.2 LP targets investor returns of 9–11% per annum net of fees, paid monthly. These returns are generated from contractual interest on secured NZ lending facilities — not equity market performance, not asset price appreciation.

The spread over term deposits reflects several things: the illiquidity premium (your capital is not immediately accessible), the credit risk of the underlying borrowers, and the management work required to underwrite and monitor a portfolio of secured loans.

The Real Trade-offs

Liquidity: Term deposits have defined maturity dates. Breaking them early typically incurs a penalty. Private credit funds like Capital Connect No.2 LP have a 12-month minimum hold period, with quarterly redemption windows thereafter. Neither is entirely liquid — the difference is in the structure, not the principle.

Security: Term deposit security comes from the Crown Retail Deposit Guarantee and bank regulation. Private credit security comes from registered charges over identifiable assets — business equipment, property, receivables. At Capital Connect, our maximum loan-to-value ratio is 70%, meaning there is a 30%+ buffer between the loan balance and the assessed collateral value before an investor loses any capital.

Risk: Both carry risk. A bank can fail — it is rare in New Zealand but not impossible. A private credit borrower can default — our credit assessment process and security framework are designed to manage this, but no investment is risk-free.

Who Private Credit Suits

Private credit is not a term deposit substitute for everyone. It suits investors who:

• Are eligible wholesale investors under the Financial Markets Conduct Act 2013
• Have a minimum of NZD 100,000 to allocate
• Are comfortable with a 12-month minimum hold period
• Understand and accept the risks of secured business lending
• Are looking for monthly income, not capital growth

If that describes your situation, private credit deserves serious consideration alongside your existing fixed income allocation.

---

This article is general information only and does not constitute financial advice. Independent legal, financial and tax advice should be obtained before making any investment decision. Investment in Capital Connect No.2 LP is available to eligible wholesale investors only.