Term deposit rates

The Reserve Bank of Australia (RBA) has raised the national cash rate by 25 basis points to 4.35% at its November 2023 meeting to head off the risk of inflation not returning to its target band fast enough. It’s not yet known if the RBA could raise the cash rate even further, though economists from the big banks are mostly predicting an extended pause to follow over much of next year.

If the banks pass this hike on to customers as higher interest rates on term deposits, some Australians may be able to reap the rewards, especially if they can lock in a fixed interest rate that’s higher than Australia’s inflation rate. Just remember that if you already have a term deposit, you may need to wait for the deposit to reach maturity before you can switch to an alternative option.

Some of the highest term deposit rates on RateCity at the time of writing include:

Updated by Mark Bristow on 7 November 2023.

Term deposits work much like savings accounts or investments, but with a few key differences. 

By opening a term deposit, you can securely deposit a sum of money in a bank and earn a predictable amount of interest over a set period, known as the term or maturity. 

This method of banking allows you to determine in advance the exact interest you will earn, irrespective of market fluctuations.

Once you have made the deposit, accessing the funds before the agreed-upon term ends may not be convenient. However, at the conclusion of the term, you have the option to withdraw the funds or renew the deposit for another term.

Many term deposit providers require an advance notice of about a month before you can access the deposited funds. Additionally, some banks and term deposit providers may impose financial penalties if you opt to withdraw funds from the term deposit before the full term completes. These penalties could take the form of a breakage fee or a forfeiture of a portion or all of the interest you might have earned on the deposited amount.

In general, a term deposit serves as a relatively low-risk investment option, generally suitable for those who don't need immediate access to their funds. Term deposits are often popular among individuals and businesses aiming for a safe and secure investment that comes with a fixed payout over a set period. These long term savings accounts offer guaranteed interest earnings, which makes them a good match for cautious investors who want to keep things steady and protect their cash.

Term deposits offer several benefits that may be attractive to savers and investors, particularly those seeking a fixed payout over a set period.Here are some potential benefits of term deposits: 

Low risk 

One of the standout perks of term deposits is the relatively low risk they offer compared to some other investment options. When you lock your money into a term deposit, you agree on an interest rate upfront. This means you'll have a clear picture of your expected earnings. Even if fluctuating interest rates take a dip, you'll still pocket your agreed-upon fixed rate. In essence, term deposits provide a reassuring safety net, minimising the chances of any investment loss. 

Control your spending 

Once your funds are safely nestled in a term deposit account, accessing them becomes a bit of a challenge, often incurring fees. Your money essentially takes a vacation from your regular spending, tucked away for a predetermined period. This added layer of separation makes it more difficult for you to impulsively splurge on everyday expenses. Term deposits promote a disciplined approach to managing your finances, helping you stay focused on your savings goals without succumbing to the temptation of frivolous spending. It's like putting your money on lockdown to watch it grow steadily. 

Low maintenance 

Term deposits 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. 

Furthermore, setting up a term deposit is generally fee-free. Unless you decide to withdraw your money early, an action that’s likely to attract a penalty fee, you usually don’t need to pay anything to open or maintain a deposit account. 

Secure

Unlike some other investment options, term deposits benefit from protection through the Australian Government’s Financial Claims Scheme or the government guarantee. This safeguard ensures that your term deposits with Authorised Deposit-taking Institutions (ADIs) are supported up to the value of $250,000 per account holder per ADI, providing a safety net in the rare event that the provider were to go under. 

In comparison, other investment options, such as shares and ETFs are not backed by the government guarantee. Despite potentially lower returns on a term deposit, the assurance of protection for your savings up to $250,000 adds a layer of security. 

Predictable returns 

Term deposits offer investors predictability in terms of returns. When you open a term deposit, you agree on an interest rate upfront and know exactly how much you’ll receive in your account at the end of the term. This predictability may be advantageous for investors looking for guaranteed returns on their savings. 

While term deposits offer several benefits, they also have some drawbacks that should be considered before investing. Here are a few potential drawbacks of term deposits:

Limited liquidity

Term deposits are known for their fixed term, typically ranging from a few months to a few years. Once you invest your money in a term deposit, it becomes inaccessible until the maturity date. If you need immediate access to your funds, you may face penalties or fees for early withdrawal.

Lower returns compared to other investments

While term deposits are considered relatively safe investments, they usually offer lower interest rates compared to riskier investment options such as stocks or bonds. As a result, the potential for significant returns on your investment may be limited.

Lack of flexibility

Unlike some other investment vehicles, term deposits do not offer much flexibility in terms of adjusting your investment strategy during the term. Once the deposit is made, you cannot increase or decrease the amount, change the term, or negotiate the interest rate. This lack of flexibility may limit your ability to adapt to changing financial circumstances or investment opportunities.

Inflation risk

Over the duration of a term deposit, inflation can erode the purchasing power of your funds. If the interest earned on the term deposit does not keep pace with inflation, the real value of your investment may decrease over time.

Opportunity cost

By investing in a term deposit, you tie up your funds for a specific period, potentially missing out on other investment opportunities that may arise during that time. If alternative investments offer higher returns or better align with your financial goals, you may lose out on potential gains by committing your funds to a term deposit.

Interest rate risk

Term deposits typically come with fixed interest rates, meaning you are locked into that rate for the duration of the deposit. If interest rates rise during your term, you may miss out on the opportunity to earn higher returns available in the market.

It's important to carefully consider these drawbacks and assess your individual financial goals, liquidity needs, and risk tolerance before investing in term deposits or exploring alternative investment options.

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 using RateCity’s comparison tables could help you make the best choice to suit your financial goals.

Once you navigate to one of our comparison tables, enter the minimum term duration and deposit amount to find options that match your criteria. You can also use the Filters to narrow down your search results or see what else is available.

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

1. Find a term deposit with the best interest rate: Before committing to a term deposit of any kind, consider finding one with an interest rate that gives you the most to work with. The higher the interest rate, the more likely that your money will be able to make money in the background. You could use our Term Deposit Calculator to calculate your potential earnings based on different interest rates and various investment terms.
2. Pick a term to leave your money: It's also important to pick a term that you're comfortable leaving your money with the bank or lender for. A term deposit is named because you're leaving your deposit for a term, and that term is one of the main factors to determine just how much money you can make. Term deposits can be as little as one month and as long as five years (60 months), though the longer you leave your money in, the more interest you could end up seeing. Pick your term carefully, because you can't just withdraw your money from a term deposit without incurring a penalty.
3. Apply for your term deposit: When you're ready to apply, head to your bank in person or use an online form to sign up and deposit your money. Please note: ​​Some financial institutions will allow you to enter your information online, while others will require that you visit a branch. Check with the bank or lender you're using to find out which you need to do.
4. Wait: Once you've deposited money into your term deposit, you're more or less just going to have to wait until the term has ended. Term deposits accrue interest as the deposit matures, but you can't take the money with its interest out until after the term has ended without incurring costs. Most banks and lenders will apply break fees if you take money out of a term deposit early, with a 31 day notice period also often required to do so. You may also see a reduced interest penalty if you decide to take money out before a term deposit has finished.