Savings surprise: Why some term deposit rates are on the rise

Banks are lifting some of their term deposit rates, despite the emergency cash rate cut last week, in a small win for savers during the coronavirus crisis.

In a surprise move, 27 banks have announced they will go the other way – increasing rates on at least one of their term deposits on the back of the cut to the cash rate on Thursday.

The move was led by Australia’s biggest bank, CBA who announced they would hike their 12-month term deposit rate to 1.70 per cent. Banks following suit include Westpac, NAB, St George, Suncorp, Bank of Melbourne, Bank of Queensland, HSBC and Macquarie Bank

But at a time when deposit rates rarely keep ahead of inflation how do these new rates compare?

RateCity analysis shows that as of today, just 2 per cent of term deposit rates on the database offer interest returns that are equal to, or above, current inflation at 1.8 per cent.

As of today, the highest rate clocks in at 2.15 per cent from Judo Bank for 5 years.

Some of the highest term deposit rates on RateCity.com.au

Bank Rate Term
Judo Bank 2.15% 5 years
Westpac 2.00% 8 months (for ages 65+)
CUA 2.10% 12 months (for ages 65+)
First Mac 1.95% 6 months
Arab Bank 1.90% 6 months
ING 1.85% 12 months
Bank of Us 1.85% 7 months

Note: Rates are effective as of 25.03.2020 with the exception of Westpac. Terms under 6 months not included. Where the bank has multiple rates, the highest is listed. Judo offers rates over 2% for terms of 2-5 years. Some rates are dependent on balance.

The highest term deposit rates offered by the big four banks

Bank Term (months) Rates
CBA 12 1.70%
Westpac 12 1.70%*
NAB 10 1.75%
ANZ 8 1.35%

Source: RateCity.com.au. *Westpac rates effective 27 March. Customers 65+ can access an 8-mth term deposit of 2.00%.

RateCity research director Sally Tindall said: “Term deposits were once a popular option to get a consistent return on equity. Now, they are little more than a safe place to park your cash.

“While the days of double-digit interest on term deposits are behind us, that doesn’t mean people should just throw their hands up in the air and do nothing.

“It’s great to see banks boosting at least one of their term deposit rates to give people an opportunity to get just that little bit more at this difficult time.

“Increasing term deposit rates will especially benefit retirees, who rely on the interest they earn from their savings. Notably, Westpac will this week start offering a market-leading rate of 2 per cent for an eight-month term deposit for people aged 65 and over, and CUA put a 2.1 per cent 12 month term deposit on the table for over 55’s.

“Neo bank Judo is one of the other standouts in this market. No, it’s not a traditional, brick-and-mortar bank but what’s important is whether it’s an authorised deposit-taking institution, which it is.

“The government will guarantee deposits of up to $250,000 per person, per bank, regardless of which authorised deposit-taking institution you choose,” she said.

The ins and outs of term deposits

  • Is my money “safe” in a term deposit?

The government guarantees up to $250,000 per person if the money is deposited with a bank, building society, credit union or financial institution that is an accredited authorised deposit-taking institution (ADI).

  • Can I pull my money out early?

If you pull money out of a term deposit early, you can potentially be charged a fee, miss out on interest or have to wait up to a month to receive your money. However, many banks are waiving some penalties related to breaking a term deposit if you have been affected by the COVID-19 crisis. Contact your bank to discuss your options.

Some of the highest term deposit rates on RateCity.com.au

1-year term deposit Rate
Judo Bank 2.05%
CUA 2.10%
Firstmac 1.90%
ING 1.85%

 

2-year term deposit Rate
Judo Bank 2.00%
ING 1.85%
QBANK (min $250K) 1.70%

 

3-year term deposit Rate
Judo Bank 2.05%
Australian Military Bank (min $50K) 1.65%
QBANK (min $250K) 1.65%

Note: RateCity’s analysis of term deposit rates includes all product variations in relation to length of term and size of deposit.

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Learn more about term deposits

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 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.

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.

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.

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.

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.

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.

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.

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.

What is the best term deposit rate in Australia?

If you’re ready to add a term deposit to your financial strategy, there’s likely one question on your mind: what is the best term deposit rate in Australia?

Unfortunately, there’s no one right answer to this question.

That’s because if you want to find the best term deposit rate in Australia, you first need to understand the nature of interest rates themselves. The financial market is always moving, with interest rates moving up and down and special offers being introduced and withdrawn.

As a result, whatever the best term deposit rate in Australia is today might not be tomorrow.

So to find the best term deposit rate in Australia, it’s best to ignore the past and to instead focus on today’s market. Compare term deposits to find out the current rates and find the right term deposit for you.

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.