What Is a Kiwi Bond?
Let me explain what a Kiwi Bond is. It's a fixed income security issued and guaranteed by the New Zealand government. You get a fixed interest rate over a period from six months to four years, and you can buy them starting at NZ$1,000 up to a maximum of NZ$500,000. Remember, these are only for New Zealand residents.
Key Takeaways
- A Kiwi Bond is a security sold directly to the public and limited to New Zealand residents.
- They're in New Zealand dollars with fixed interest paid quarterly in arrears.
- Maturities are six months, one year, two years, or four years.
- You can invest from NZ$1,000 minimum to NZ$500,000 maximum per issue.
How Kiwi Bonds Work
You might think the name Kiwi Bond sounds unusual, but it fits because New Zealanders are called Kiwis, after the native bird, and even their rugby team uses the name. These bonds are the primary investment choice for individual investors in New Zealand. They're fully backed by the government, so they're safer than bank or corporate bonds—there's almost no default risk. The trade-off is lower interest rates.
Kiwi Bonds are in NZD and mature in six months, one year, two years, or four years. You can redeem them at maturity or earlier if you want. The government sets a minimum of NZ$1,000 and a max of NZ$500,000 per issue.
Interest on Kiwi Bonds
Interest is fixed and paid quarterly in arrears. The rates come from the New Zealand Debt Management Office, based on averages of domestic wholesale rates. As of February 2021, six-month and one-year bonds gave 0.25%, while two-year and four-year ones offered 0.50%.
You can get application forms and details from the New Zealand Debt Management Office Registry, or check with local banks, investment firms, brokers, chartered accountants, solicitors, or advisors.
Special Considerations
The New Zealand government restricts Kiwi Bonds to residents only. Foreign investors can't buy them, and even New Zealand citizens living abroad are ineligible. This keeps it exclusive to those living in the country.
Advantages and Disadvantages of Kiwi Bonds
Financial experts often highlight Kiwi Bonds as a solid option that doesn't get much attention but offers good benefits for the right investor. While other economies faced ups and downs from disasters, New Zealand's stayed stable with steady growth.
Their low risk, backed by a trusted central bank, makes them appealing, especially after New Zealand handled the 2020 crisis well, boosting confidence in their debt. They guarantee returns and security, but the low rates mean they're not ideal if you want quick profits or can handle more risk. In that case, bank or corporate bonds might suit you better.
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