What is the most secure type of finance company investment?

Quick guides

Term investment options

There are several common term investment options. You can invest in a:

  • ‘term deposit’ with a bank, building society or credit union
  • 'debenture’ with a finance company or industrial company
  • government bond.

Term deposits

Banks, building societies and credit unions all offer term deposits - your term deposit money is used to make loans to their customers.

The risks to investors vary but since banks are bigger and lend to more borrowers, they’re less likely to face difficulties if a loan goes bad. See Government guarantees for more information.

With a term deposit, it is generally possible to withdraw your investment early if you need to - but you may pay a sizeable penalty.

An alternative to a bank term deposit is a high-interest savings account. Many of these pay rates as good as or better than term deposits, without locking your money away for a set term.

Finance company debentures

A term investment in a finance company is called a debenture. A debenture can be either ‘secured’ or ‘unsecured’.

A secured debentureis the most secure type of finance company investment. Even so, if the finance company goes into receivership, a secured debenture holder is paid only after employee wages, tax and other bank or finance-company commitments have been met.

An unsecured debenture means that in the event of receivership, all unsecured debenture holders are paid only after employee wages, tax, other banks or finance companies, and secured debenture holders have been repaid.

Finance company debentures can’t be withdrawn early if you want your investment back before the end of the set time period.

The quality of the company you invest in matters a great deal - if you invest in a poorly managed finance company, the investment could go wrong. See What are the risks for more.

Government bonds

When you invest in government bonds, you're lending money to the government for a fixed term.

Bonds can be bought and sold through brokers (the minimum investment is $1000). Institutions like banks hold government bonds, but ordinary investors can too.

If you sell the bond early, your return will reflect what you sell it for (which could be a lot different than what you paid).

Important

Like you, we can't predict the future - which means we can't guarantee the performance of any company or investment. Consumer NZ does not endorse any specific company, scheme or investment. ConsumerSaver is a good starting point - but, before you commit, we strongly suggest you seek independent financial advice. See our full disclaimer.