A term deposit is a type of investment where you place your savings in an account for a fixed length of time. Over this term, the bank will pay you interest at a fixed rate on the amount you invest.
Term deposits are often considered relatively low-risk investments, and could be useful if you’re looking to add an extra boost to your savings. As you’re essentially locking your money away for a set period, banks will usually offer higher interest rates on term deposits than on regular savings accounts.
Term deposit interest rates are fixed, and are not variable rates. Whatever the interest rate is on the day you join is what it will be for the full deposit term. And unlike a savings account or other banking products, it's unlikely you'd be able to get bonus interest from a term deposit.
The catch is that you can’t easily withdraw your funds while they’re locked into a term deposit. You may need to provide advance notice (31 days' notice is common), pay a fee, or receive less interest to withdraw money early from a term deposit. Unlike locking your nest egg away in a savings account, you cannot just withdraw your term deposit funds from an ATM, for example.
For example, if you were to deposit $5,000 into a three-month short-term deposit, you wouldn’t be able to use those funds until the term deposit matures after three months.
At the end of the three-month term, you’d get the initial $5,000 back, as well as any interest you earned on your deposit during the term.
The amount of money you can make by depositing your savings will depend on the term deposit rate, the term length, and the amount of money you deposit.
For example, here are the calculated final balances for different starting deposits and term lengths, assuming an interest rate of 2.25 per cent:
| 3 months||6 months ||9 months ||12 months |
|$5,000 term deposit ||$5,028||$5,056||$5,084||$5,113|
|$10,000 term deposit||$10,056||$10,113||$10,169||$10,225|
|$20,000 term deposit||$20,113||$20,225||$20,338||$20,450|
|$50,000 term deposit||$50,281||$50,563||$50,844||$51,125|