Searching for a secure term deposit provider to store your savings with? You may be considering using a bank over credit unions, mutual banks or online-based providers. Here is everything you need to know about bank term deposits.

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0.70%

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p.a for 11 months

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Learn more about term deposits

What is a term deposit?

A term deposit is a type of cash investment that is held in a bank account for an agreed time period (term). Once you deposit your money, you typically aren’t able to withdraw it until the end of the term without being charged a fee.

Term deposits are a popular savings option because they allow you to lock in an interest rate before you make the deposit. This means you know how much you will earn in interest during the term, and you can have peace of mind that your money won’t lose value.

You can find term deposits from most financial institutions in Australia, including the big four banks (CBA, Westpac, NAB and ANZ) as well as competitor banks, credit unions, mutual banks, online banks and neobanks.

What are the benefits of choosing a bank for my term deposit?

When choosing the best term deposit for your financial situation, one question you may face is what type of provider should I use? 

As mentioned above, there are a range of financial institutions that offer term deposits. However, many Aussies make the choice to deposit their savings with a bank for stability, safety and reliability. 

Here are some benefits of bank term deposits:

  • Safer investment. Larger financial institutions carry less risk of going under than newer banks, such as neobanks. While all Australian Deposit Institutions (ADIs) are backed by the Australian government financial claims scheme, you're typically afforded greater security when banking with a well-established big bank. 
  • Everything in one place. Another perk of using a bank for your term deposit is that the bank will more likely offer a greater range of other financial products. This can be useful for the Aussies who prefer the convenience of all their finances, such as home loans and savings accounts, with the same bank.
  • Pay interest on larger deposits. Most term deposit rates are set on a tiered basis, meaning that depending on the minimum deposit you can make, you may be offered a different interest rate for a bigger or smaller deposit. Banks - especially the big four - will be more likely to be able to afford interest on larger deposit amounts, and may even offer more competitive interest rates for these deposit sizes. This is because traditional banks will simply have more funds to afford bigger payouts to customers than newer neobanks, for example. 

What are the disadvantages of choosing a bank for my term deposit?

It's also worth considering some of the potential disadvantages of choosing a bank, including:

  • Lower rate of return. Online lenders and some competitor banks may be able to offer a higher rate of return through interest payments. This is because compared to traditional brick-and-mortar banks, these providers have fewer overheads and can pass these savings onto the customers in the form of high interest rates. 
  • Higher fees. Similarly to the point above, non-bank term deposit providers can typically afford to charge customers fewer fees. This also helps to set themselves out as more competitive in the market in an effort to attract new customers. 
  • Access to fintech. If you choose to bank with a newer credit union, online lender or neobank, you may be more likely to gain access to innovative fintech and savings tools. While term deposits are relatively simple deposit accounts, savers may miss out on other perks and tricks to boost their savings that may be offered by these competitor lenders.

Keep in mind that there may be differences between the big four banks and other banks when comparing deposit products. Smaller, competitor banks may be able to offer a greater rate of return and fewer fees on your term deposit due to the very reasons listed above.  

Features to consider when choosing a bank term deposit

When selecting a term deposit, it’s important to read the product disclosure statement, so you know all the terms and conditions that come with the deposit. Some of the key features to look out for include:

  • Term length

There are two main types of term deposits – short-term and long-term. Their appropriateness depends on your personal objectives for your savings. Short-term deposits are usually for a period of less than a year and as little as a month. If you have a short-term goal such as saving for a holiday, this type of term deposit could be a good option.

Long-term deposits are typically for saving over more than a year and up to five years (or even seven years in some cases). This type of term deposit could be suitable if you have a more significant savings goal or want to take advantage of a higher interest rate.

  • Interest rate

The interest rate you agree on at the start of the term will determine how much of a profit you make off your deposit, so it pays to do some research and look at all your options.

Keep in mind that the longer you keep your money in the bank and the more money you can deposit, the higher the interest rate will tend to be.

  • Fees

Term deposits are a competitive financial product amongst savers due to their having fewer fees than most savings accounts or even bank accounts. The biggest fee you may face is a break fee if you try to make an early withdrawal and leave the term deposit fixed term early. Keep this in mind if you plan on withdrawing your funds before the agreed upon period of time. 

  • Automatic rollover

Many term deposit accounts offer automatic rollovers. Unless you notify the provider within a set period of time (often 30 days notice before the end of the term deposit period), your funds may rollover into a new term deposit fixed period. For example, if you locked away your funds for 12 months, your provider would roll your money and interest earned into a new 12-month term deposit. 

This feature can have its advantages though, as some providers offer bonus interest for account holders who allow their funds to rollover into a new term. Ensure you measure the appropriateness of this by comparing interest rates from other providers before locking your funds away again.

Pros and cons of term deposits

If you’re thinking about using a term deposit to grow your money, here are some of the pros and cons worth considering:

Pros

  • Rate of return. Your money earns interest at a fixed interest rate, so it isn’t exposed to variable rate downturns in the market. 
  • Low maintenance. Once you make the deposit, you can leave it untouched until the term ends. 
  • Enforced savings. As you can’t access your money for the duration of the term without paying a fee, you may be less tempted to spend your savings than if you used a savings account or transaction account. 

Cons

  • Your money is locked away. You can’t withdraw your money during the lifetime of the term (unless you are willing to pay a penalty), which means it’s off-limits even if another investment opportunity arises.
  • Low returns. Although the interest rate is fixed, the earnings may be lower than other types of investments.
  • No bonus interest. Unlike some high-interest savings accounts, there’s no way to earn bonus interest on savings in a bank term deposit.

Frequently asked questions

How long is a term deposit?

A term deposit refers to when you lock your money in an account for a certain period of time and at a specified interest rate. You will not be able to access your money for the length of the agreed term without incurring a penalty fee.

A long term deposit generally refers to a term deposit that lasts for more than 12 months – which in some cases may be as long as 10 years.

Usually, the longer you store your money, the better the interest rate you’ll get, so a long term deposit will tend to pay higher interest than a short term deposit.

At the end of the term, you can roll over the money (plus the interest you’ve made during the term), or you can withdraw it all.

How safe is a term deposit?

You may have heard that a term deposit is a type of investment, different to a traditional savings account. All investment comes with inherent risk, so it’s important to know how safe a term deposit is before committing.

Term deposits offer a fixed interest rate which is guaranteed, so you do not have to worry about rising or falling interest rates when investing. You can add up how much interest you will earn over your fixed term, and this will be paid into your account per the conditions of your term deposit.

Term deposits with authorised deposit-taking institutions are also guaranteed for up to $250,000 by the Financial Claims Scheme, so you don’t have to worry about the bank collapsing either.

The only inherent risk of a term deposit is if you may need to break it early. If this happens, you will need to pay a breakage fee and possibly sacrifice some of your interest as a penalty. But if you know you can invest a certain amount of money for a fixed period of time, you can rest assured that a term deposit is a safe investment option.

Which bank has the best term deposit rates?

If you’ve been shopping around for a term deposit, you might be wondering which bank has the best term deposit rates.

Term deposit rates will generally be affected by the amount you choose to deposit and whether you opt for a short or long term deposit.

Longer term deposits tend to have higher interest rates than shorter terms. The trade-off for earning a higher interest rate on your term deposit is that you can’t access your funds for the duration of the term deposit.

When comparing which bank has the best term deposit rates, it pays to do your research and compare how your funds will fare over the short and long term.

Unlike home loans or savings accounts which give you the option of fixed or variable rates, term deposits are always fixed, which means you get a guaranteed amount of interest over the term of the deposit.

What is a term deposit?

A term deposit is an investment savings account. A term deposit usually pays a higher rate of interest than a regular savings account, with the interest rate fixed for the term (or duration) of the deposit.

You can open a term deposit account for one month or up to five years depending on your investment goal, and invest as little as $500 to start earning a profit.

With a term deposit, you get to decide how much you want to invest (the principal or deposit), for how long (the term or duration) and the frequency of interest payments.

A term deposit represents a secure form of investment, unlike trading in shares or purchasing real estate. And a term deposit up to $250,000 is protected by the government guarantee.

What is a term deposit rate?

The term deposit rate is the agreed interest rate for your term deposit. It remains fixed for the term of the deposit.

For example, if you deposit $5,000 for 12 months at a 2.5 per cent term deposit rate, that 2.5 per cent term deposit rate will be fixed for the entire 12 months and won’t change until the term matures.

The term deposit rate is one of the most important factors to consider when comparing your term deposit options. The general rule of thumb is that the longer the term, the higher the term deposit rate.

Term deposits are a popular type of investment because they’re safe and provide reliable returns.

The return you get on your term deposit will be determined by the amount you initially invest, the amount of time you choose to invest it for, and the term deposit rate.

What is a term deposit account in a bank?

A term deposit account in a bank is a type of investment where you lock away a portion of your savings for a fixed period in return for earning a set amount of interest.

Opening a term deposit account in a bank is a safe way to earn a stable return on your investment of cash.

Term deposit accounts can be a good way to give your savings an extra boost without the need to actively watch or manage your funds during the term of the deposit.

Term deposit accounts in a bank are a popular type of investment because they’re safe and there’s very little risk that you could lose your money.

If you make a term deposit of up to $250,000 with an authorised deposit-taking institution, it’s guaranteed by the Australian government, which means there’s virtually no risk of losing your money and you’re guaranteed return.

Interest rates vary depending on the length of the term, the amount you deposit and the bank you choose.

How often do term deposit rates change?

One of the advantages of a term deposit is that this type of investment enjoys a fixed interest rate. This means that the interest rate that you have signed up for will not change during the period of your term deposit, regardless of rising or falling market interest rates.

However, it is important to be aware of the end of your term deposit. Once your term ends, whether this is in three months or three years, many banks will default to rolling over your deposit into a new term, sometimes with a lower interest rate. Once your term deposit rolls over, you will then be locked into this new fixed interest rate for another term.

Make sure to use the grace period at the end of your term to your advantage. Shop around for a competitive interest rate and reinvest your money accordingly.

Can you add money to a term deposit?

When you open a term deposit, you agree to lock your money away for a set period and earn a fixed amount of interest during that period.

Where everyday transaction accounts give you the flexibility to deposit and withdraw funds as frequently as you like, term deposits trade flexibility for higher interest rates.

Once your funds are deposited in a term deposit, they’re fixed for the length of the term, meaning you can’t add additional funds midway through the term.

When the term deposit matures, you may have the option to add additional funds and roll the funds over for another term, or you may choose to withdraw the money at that point.

If you have extra funds to invest, you could consider opening an additional short term deposit account or a high-interest savings account.

It’s worth noting that you can withdraw the funds midway through the term, but a penalty is likely to apply.

What is a fixed term deposit?

A fixed term deposit is a safe and stable way to earn a fixed return on your cash investment.

Fixed term deposits are essentially bank accounts where you lock your money away for a fixed period and earn a fixed interest rate on those funds.

Fixed term deposits can be both short term, which is usually anything under 12 months, or long term, which can be up to 10 years.

Once the fixed term has ended, the bank or financial institution will give you back your initial deposit plus any interest you earn during the fixed term period.

Depending on the type of fixed term deposit account you open, when the term matures, you may have the option of rolling the funds over for a new term or withdrawing the funds.

Unlike other savings or transaction accounts which offer variable interest rates and flexible features, fixed term deposits offer fixed interest rates, which means the amount of interest you earn will remain the same during the term of the deposit.

What is the best interest rate for a fixed term deposit?

The best interest rate for a fixed term deposit changes all the time, as interest rates move up and down and banks compete with each other to win market share.

To find the best interest rate for a fixed term deposit, it’s helpful to understand how interest rates are applied to term deposits.

There are three factors that determine the fixed interest of term deposits:

  1. The size of your deposit
  2. The duration of the term
  3. The frequency of interest paid

Term deposits vary in duration from one month to five years or more. Interest rates generally work on a sliding scale; shorter terms get a lower rate, longer terms get a higher rate.

Here are a couple of examples of how interest is applied to term deposits.

  • A $10,000 term deposit taken out over 12 months, with interest paid at maturity, might receive a fixed interest rate of 2.20 per cent.
  • A $10,000 fixed term deposit taken out over 12 months, with interest paid quarterly, might receive a fixed interest rate of 2.00 per cent.

Using the size of your deposit, the duration of the term and how often you want to be paid interest, you can shop around for the best interest rate for a fixed term deposit.

How do term deposits work?

Term deposits are flexible, low-risk, and earn you interest over time. But before you apply to open a term deposit, you might be wondering: how do term deposits work?

A term deposit is an agreement you make with a financial institution. This agreement will specify a certain amount of money that you will give the bank for a certain amount of time. In return, you’ll earn a fixed amount of interest on your deposit throughout your term.

Term deposits work as an exchange between a financial institution and an individual. You can think of your term deposit as a loan to the bank. Because you’ve loaned the bank your money, they’re willing to pay you interest on your deposit.

How do you calculate term deposit interest?

If you’re ready to open a term deposit, there’s a lot you’ve already figured out. You’ve decided on the length of your term and found the best interest rate, but there’s something you still might be wondering. How do you calculate term deposit interest?

One of the easiest ways to calculate term deposit interest is by using a term deposits calculator. However, you can also estimate your total earnings on your own.

A fixed interest rate signifies what percentage of your original balance your term deposit will earn annually. For example, a deposit of $1,000 at an interest rate of 3 per cent will earn three per cent of $1,000 annually – meaning you’ll earn $30 of interest each year.

You can estimate your interest using three variables. Multiply together your deposit amount, interest rate, and term length and you’ll approximate the interest a deposit will earn. For example, if you invest in a term deposit for $5,000 at an interest rate of 3 per cent for two years, your interest would total $300.

Can I negotiate a fixed term deposit rate with the bank?

“Can I negotiate a fixed term deposit rate with the bank?” you may be wondering.

Many banks welcome negotiation when it comes to term deposit rates, especially with deposits of over $100,000. Even if your deposit is lower than $100,000, it may be worth a discussion with your bank.

Negotiating with your bank could secure you a higher fixed rate, which will earn you extra interest over your term. You may also discover bonuses or special offers you can acquire through your bank.

Securing the highest interest rate possible is the key to making the most of your term deposit. You may have compared deposits online or discussed your options with a financial adviser, but you also might be wondering about negotiation in order to get a better rate.

Can students make term deposits?

If you are a student who has managed to save some money and are looking for a safe investment option, you may be considering a term deposit. Most term deposits (and other bank accounts) are open to anyone who is at least 18 years old.

There are also some term deposits open to younger students, some even without an age limit. These term deposits are usually opened on the student’s behalf, by their parent or guardian.

A term deposit is generally a safe investment option, especially if you want to make sure you can’t touch your savings for a set period of time. If you are 18 or older, shop around for a competitive interest rate before committing. If you are under 18, speak to your parent or guardian to get started.

Can you take a term deposit out early?

If you are considering a term deposit, you may be wondering if you can take out your money early. It is possible to break a term deposit, but it will cost you both time and money.

Many banks require 31 days’ notice if you wish to break a term deposit. This means that if you need money urgently for an unexpected expense, it may not be worth breaking your term deposit. Make sure to read the fine print to see if this wait period applies to the term deposit you are considering.

You will also most likely need to pay a breakage fee in order to access your funds, and you may also incur a reduced amount of interest. All of this information – including the fee amounts – should be available in the term deposit product disclosure statement (PDS), so ensure that you read the fine print before committing.

Will term deposit rates increase?

While there’s no definite way to predict when term deposit rates will increase, it may help to understand some of the factors that influence term deposit interest rates.

The official cash rate is set by the Reserve Bank of Australia (RBA). When the RBA either increases or cuts interest rates, it influences the interest rates set by banks.

The other factor that determines when term deposit rates will rise is competition between banks. Banks may increase their term deposit rates or offer higher rates as an incentive to win new customers over or increase their market share.

Term deposit interest rates will also change, depending on how much you invest and how long you invest.

How do you break a term deposit?

If you have found yourself in sudden need of funds, you may be wondering how to break your term deposit and access your savings.

If you need to break your term deposit, your first step should be to check the terms and conditions with your bank or provider. Many banks now require 31 days’ notice before you can access the funds in your term deposit, so in many cases you should first notify your bank that you will be breaking the term.

Once you have notified the bank and know when you will have access to your funds, you will then be liable to pay a breakage fee. Check with your provider to see how much this fee will be. You may also need to sacrifice a percentage of your interest as a penalty for breaking the term early.

Once you know when you will have access to your funds, and how much you will need to pay to do so, you are in a good position to decide whether you want to break your term deposit.

Is a term deposit an asset?

The short answer is yes – a term deposit is, indeed, an asset.

Regardless that the funds are locked away for a fixed period, when it comes to the balance sheet, it’s considered an asset.

Aside from being an asset, term deposits are also cash investments which are held at financial institutions like banks or credit unions.

Term deposits work by investing a set amount of cash in a bank account for a fixed period at a fixed interest rate.

When you deposit your money in a term deposit, you’re agreeing to lock it away for a predetermined period, ranging from short-term periods of one month all the way to long-term periods of up to 10 years.

Term deposits are a popular way to boost your bottom line by investing your money and increasing the value of your asset.

Can I break a term deposit?

One of the main components of a term deposit is your agreement that you won’t access your money until your term has expired. However, life can hand us unexpected expenses, and you might be asking yourself, “Can I break a term deposit?”

In most cases, you are able to withdraw money early from your term deposit, but it will usually come with a penalty. The penalty amount will vary from bank to bank, which is why it’s important to understand your deposit’s early withdrawal policy.

You should also be aware that some financial institutions enforce a waiting period for early withdrawals. This waiting period is typically up to 31 days and commences after you submit a request to withdraw your funds.

Are term deposits worth it?

Ultimately, whether term deposits will work for you will depend on your particular financial needs.

Term deposits can be a great way to get your money working for you. By locking it away and forgetting about it for a period of time, it can earn interest for you. If you have the interest paid on a regular basis, rather than at maturity, you can either have some extra spending money or you can reinvest it into the term deposit to compound.

Of course, locking your money in a term deposit means you cannot access it for the length of the term, without paying a penalty for early withdrawal. This can remove the temptation to spend the money, while it also earns interest.