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Learn more about term deposits
Looking for a financial product with the stability of a bank account, that offers you a little more in return? It may be worth considering a term deposit.
For Australian savers, a term deposit lets you store your savings with your chosen bank and lock in a steady interest rate to grow your wealth over time. Depending on your personal objectives, a term deposit may help you to achieve your savings goals.
What's new in term deposits for June 2021?
As we enter the new financial year it may be worth performing a financial health check on your term deposit account. While interest rates may be at record lows, that doesn’t mean you have to suffer with a rock-bottom rate.
In fact, some lenders are bucking the trend and hiking their term deposit rates. RateCity research found that in the last month alone, 8 term deposit providers increased their rates, including Suncorp Bank and Macquarie Bank.
If your term deposit period is coming to an end soon, hop onto the comparison table on this page and look at what other competitive options are available. You may find that a new term deposit provider is willing to offer you a higher rate than you’re currently earning.
As a savings financial product, RateCity recommends comparing the interest rates, fees, and how frequently the provider cuts its rates to find the most competitive term deposit for your financial needs.
- Judo Bank Personal Term Deposit 1.60% for 5 years
- ME Bank Term Deposit at 1.40% for 5 years
- MOVE Bank Term Deposit at 1.00% for 2 years
- Greater Bank Term Deposit at 1.00% for 5 years
Updated by Alex Ritchie on July 5, 2021
What is a term deposit?
Term deposits work much like savings accounts or investments, but with a few key differences.
When you open a term deposit, you will put money in the bank to earn interest over a fixed term. This means you can calculate in advance how much interest you can earn on your savings, regardless of changes in the market.
Once you’ve deposited the money with the bank, you won’t be able to easily access these funds until the end of the agreed-upon term. At the end of your term, you can withdraw your money, or choose to roll your deposit over for another term.
What features should I look for in a term deposit?
Here are some of the main features to look for in a term deposit:
- Term deposit interest rates
The first feature to consider is the fixed interest rate, as this will determine how much interest you’ll earn on your deposit over the fixed term. As a general rule of thumb, you may find that high interest rates mean higher rate of return. It’s important to be confident that you are getting the best rate possible for your situation.
- Fixed term
You’ll also want to consider the term, which is the length of time that your funds will be locked away. Term deposits are usually broken up into two categories: short-term and long-term deposits. Short-term deposits can be as short as one month, while long-term deposits can last years. Longer terms often offer higher interest rates than shorter terms, but it’s best to check with your financial institution.
- Interest payment frequency
You may want to look at how frequently you’ll be paid interest. Term deposit providers may pay interest on the following terms:
- At maturity (the end of the term)
- Minimum deposit
Term deposit providers may have minimum deposit requirements before they'll allow you to open a term deposit account with them. Providers also typically offer tiered interest rates for different minimum deposit sizes. For example, a minimum investment of $5,000 may come with a lower interest rate than a minimum investment of $250,000.
- Rollover terms
It’s also worth thinking about rollover terms before committing to a term deposit. These are the options available to you at the end of your term, when you’re able to reclaim your deposit and interest earnings. Some providers will require a certain number of days' notice if you're planning on withdrawing your funds and closing your term deposit account.
Some term deposits will allow you to immediately reinvest your savings into a new term deposit and earn even more interest. If you do decide to reinvest right away, it’s important that you reconsider what the current interest rate is as it may have changed since you first opened your account.
You may have the option to have this interest paid into a bank account of your choice, to supplement your household income, or even put towards your home loan or outstanding credit card debt.
Do term deposits charge fees?
You won’t typically find annual or account-keeping fees attached to your term deposit. In fact, many term deposits don’t charge any fees.
However, you should be aware of penalty fees. A penalty fee usually applies if you decide to access your money before the end of your term. These fees will vary by lender, so it’s best to check the penalty fee amount before agreeing to a term deposit.
For a full breakdown of any potential fees, check out the term deposit account's Product Disclosure Statement. This will outline any costs as well as the range of terms you may be expected to meet to qualify for the highest interest rate.
Can I withdraw money from a term deposit?
When you apply for a term deposit, it’s often assumed that you’ll be keeping your money in the bank for the full duration of the agreed term. Some banks will allow you to withdraw part or all of the money from your term deposit early, but penalties may apply.
To withdraw part or all of the money from your term deposit, you’ll often need to give advance notice, often 31 days. You may need to pay a penalty fee for early withdrawal. You may also see the interest rate on your term deposit reduced if you make early withdrawals, affecting the interest you’ll earn.
What are the benefits of term deposits?
One of the biggest potential benefits of a term deposit is the relatively low risk compared to some other investment options. Term deposits require you to agree on a rate before your money is locked away, which means you’ll know exactly what you should be earning. Even if variable interest rates fall, you’ll still earn your fixed rate, so there’s very little risk of losing any of your investment.
Term deposits can help you manage your spending. After you deposit your money into your chosen account, you can no longer access it without paying a fee. As your money is practically unavailable to you for a fixed period of time, it’s much harder for you to spend this money elsewhere on everyday purchases.
Term deposits also don’t take a lot of work to maintain. Thanks to your fixed rate, your investment should earn interest and make money with barely any effort at all. This means they often appeal to people who tend to be more hands-off with their personal finances.
In terms of security, your deposit should be kept safe thanks to the government guarantee. This means that a licensed term deposit provider will have been approved by the Australian Prudential Regulation Authority (APRA) as an Authorised Deposit-Taking Institutions (ADI). This means that any deposit products will be protected under the Australian Government’s Financial Claims Scheme, which states that deposits up to $250,000, for each account holder at any ADI, are protected in the worst-case scenario the provider were to go under.
What are the drawbacks of term deposits?
One potential drawback of a term deposit is that you can’t access your money during the term without being charged a penalty fee. For some this can be a positive, but for others it can make term deposits seem restrictive. If you’re looking for a lot of flexibility and control over your finances, you might want to consider a savings account rather than a term deposit.
Another potential downside is that your term deposit rate won’t rise with the market. If variable interest rates rise, your term deposit won’t adopt a higher rate, because the same rate has been locked in for the entire length of your term.
- Relatively low risk
- Can help you manage your spending and save
- Low maintenance
- Harder to access your money
- Won't benefit if variable rates rise
Who offers term deposits?
Most financial institutions can offer you a term deposit, including big banks, mutual banks, credit unions and online banks. If you’re already a customer, it might be especially easy to set up a term deposit with your bank, as they should already have most of your details.
However, it’s important to keep in mind that your current bank or credit union might not offer the best term deposit for your financial situation. For example, another bank may offer a more competitive interest rate or more convenient access to your money. Comparing term deposits can help you make the best choice to suit your financial goals.
How do I apply for a term deposit?
Applying for a term deposit can be a lot like opening a transaction account. Once you've compared a range of term deposit options through comparison tools, such as term deposit tables and term deposit calculators, you can begin the application process.
After you’ve made your choices regarding your term deposit, you’ll need to fill out a form to apply. You'll typically need the following:
- Proof of age (18 and over)
- To be an Australian resident or 457 visa holder
- Personal identification, such as a passport or drivers license.
- Employment and income information
Some financial institutions will allow you to enter your information online, while others will require that you visit a branch.
Latest in term deposits news
Three alternatives to low term deposits
In recent months, banks have been slashing term deposit interest rates dramatically. While term deposits have never been “get rich quick” investments, it’s now much harder to earn a steady income from term deposit interest, which many Australians (such as retirees) have relied upon in the past.
Sally is the Research Director for RateCity and a regular commentator on television and radio about personal finance matters. She is passionate about helping everyday Australians get access to affordable finance options, and helping people save money through smart budgeting and easing everyday expenses. Sally is a contributor to news outlets including Fairfax, News Ltd and Money Magazine, among others.
Frequently asked questions
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 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 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.
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 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 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.
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:
- The size of your deposit
- The duration of the term
- 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 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.
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.
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 covered by the Australian government guarantee?
Yes, term deposits are covered by the Australian government guarantee.
Under the Financial Claims Scheme, the Australian government guarantees term deposits up to $250,000, capped at one person, per financial institution.
This means that your term deposit (if it’s $250,000 or less) is protected in the unlikely event the bank, building society or credit union collapses.
If you have more than $250,000 in a term deposit with one the one bank, for example, then only up to $250,000 of your principal is covered.
If you’ve got more than $250,000 and you wish to invest in a term deposit, you could consider dividing your money between term deposits and banks (limiting each deposit to $250,000 per bank).
That way all of your deposits are protected by the Australian government guarantee and you will not suffer any financial losses.
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.
Are term deposits safe?
Term deposits can be a great way to build your savings, but before you invest, you might have one important question. Are term deposits safe?
When it comes to investing your money, you can choose between high-risk and low-risk options. High-risk options tend to have a better potential payout, but you also risk earning no profit at all or even losing your original investment.
Low-risk options tend to earn less profit than high-risk options, but they’re also safer, with little to no risk of losing money. Term deposits fall into the low-risk category.
Term deposits are safe because they’re low-risk, but they’re also protected by the Australian government’s Financial Claims Scheme. This government guarantee will insure your deposit for up to $250,000 per person, per institution, meaning that even if the bank collapses, the government will reimburse you for your deposit.
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.
What is a secured term deposit loan?
A secured term deposit loan is a personal loan that’s secured by a term deposit. To take out a personal loan that’s secured by a term deposit you would need to go through the same bank.
Generally, secured term deposit loans offer a lower rate of interest than standard personal loans. This is because the interest generated by your term deposit offsets the interest applied to the loan.
A secured term deposit or term deposit secured loan enables you to leave your money invested in a term deposit while still being able to make significant cash purchases.
This type of personal loan usually offers many of the same features of a standard loan, including: redraw facility, variable and fixed interest rate options, and the ability to make extra repayments.
How do I pay tax on term deposits?
Just like your regular income, the interest you earn on term deposits is taxable. You might be wondering, “How do I pay tax on term deposits?” The tax you pay on your interest will depend on the length of your term and when your interest is paid.
You should pay tax on any interest that you have received within the current financial year. For example, if you receive monthly interest payments, these payments should be claimed on your tax return. However, if your term deposit is longer than one year and you will only receive interest at maturity, then you will pay tax on your interest in the year that you receive it.
Paying tax on your interest is much like paying tax on your income. The money you have made in interest should be claimed on your tax return along with any other income in that year.
Are term deposit accounts subject to capital gains tax?
The tax you pay on a profit generated by a term deposit is not classified as capital gains tax (CGT). CGT applies to an asset (or investment), such as real estate or shares, where you either make a capital gain or a capital loss.
Interest earned on a term deposit is considered income though, and would need to be included in your annual income tax return.
The interest can be declared in the year the investment matures, or for the financial year it was credited to your account.
This also applies if you roll over your investment into a new term; you are still required to declare the interest earned at the rollover date (whatever financial year that falls in).
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.