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Are you on the hunt for a secure way to stash your cash, something more exciting than a typical savings account? Well, look no further than a term deposit.

For those seeking a reliable means of growing their money, a term deposit can offer the opportunity to deposit funds with their chosen bank while securing a fixed interest rate. This arrangement enables the gradual accumulation of wealth over a predetermined period. Depending on your specific financial objectives, a term deposit can serve as an effective tool to help you achieve your savings goals.

What's new in term deposits for November 2023?

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:

Term Deposit Interest Rates

Term

Banks 

5.10% p.a.

5 years

Rabobank Australia Term Deposit

5.10% p.a.

4 years

Judo Bank Personal Term Deposit (At Maturity)

5.00% p.a.

3 years

Community First Bank Term Deposit

5.25% p.a.

2 years

G&C Mutual Bank Term Deposit (2 years)

5.25% p.a.

1 year

Bank of Sydney Term Deposits

Updated by Mark Bristow on 7 November 2023.

What is a term deposit?

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.

What features should I look for in a term deposit?

When considering a term deposit, it's important to keep an eye out for several key features that can impact your investment. Here are some of the main features to look for in a term deposit: 

Term deposit interest rates

One of the primary features to prioritise when evaluating term deposits is the fixed interest rate offered. The interest rate plays a crucial role in determining the overall earnings you will receive on your deposit throughout the fixed term. As a rule of thumb, higher interest rates tend to result in a greater rate of return on your investment. Therefore, it is essential to ensure that you secure the best possible interest rate that aligns with your specific financial circumstances.

Term duration

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. 

Common short-term deposit options include 30 days, 60 days, 90 days, 120 days, 180 days, and 12 months. If you don’t want to tie up your funds for a long time, a short-term deposit could be a relatively safe and practical option for parking your money. 

However, longer terms typically offer higher interest rates, but this can vary among financial institutions. If you’re looking for a low-risk investment option for a few years, a three-year term deposit might be worth considering. Beyond providing stable returns, it's likely to yield more than a traditional savings account. 

In addition to the interest rate, it’s also important to evaluate whether you would need access to the funds in the near future or if you can commit to a longer lock-in period to potentially earn more interest. Keep in mind that your financial institution could impose penalties for withdrawing funds before the end of the scheduled term. 

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:

  • Annually
  • Semi-annually
  • Quarterly
  • Monthly
  • At maturity (the end of the term)

Minimum deposit

When considering opening a term deposit account, it's important to be aware that term deposit providers often have specific minimum deposit requirements. These requirements indicate the minimum amount of money you need to invest in order to open a term deposit with them. Additionally, providers typically offer tiered interest rates based on different minimum deposit sizes.

For instance, let's say a provider has a minimum deposit requirement of $5,000. If you invest this minimum amount, you may be eligible for a certain interest rate. However, if you have a larger sum to invest, such as $250,000, the provider might offer, or you may be able to negotiate, a higher interest rate for a larger deposit. In other words, the interest rate tends to increase as the minimum deposit size grows.

Understanding the tiered interest rates based on minimum deposit sizes can help you make an informed decision when selecting a term deposit provider. If you have a specific deposit amount in mind, it's important to compare offerings from different providers to find the one that offers the most competitive interest rate for that deposit size.

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.

Fees and charges

In most cases, term deposits are free from ongoing fees. However, it's essential to be cautious as certain financial institutions could apply charges for actions such as account opening, early withdrawal of funds, or administrative tasks. Look for term deposits that minimise fees to maximize your returns.

Deposit insurance

In Australia, the government guarantee offers protection on deposits up to $250,000 per ADI. Be aware that, in some circumstances, multiple subsidiary banks are covered under a single ADI. This could mean that, even though you might not have deposits exceeding the goverment guarantee with any one institution, you could be over the limit in terms of aggregate ADI protection.

Do term deposits charge fees?

Term deposits are usually free from account opening and maintenance fees. Unlike some other financial products like transaction accounts or credit cards, term deposits are intentionally designed to be fee-free.

However, it's important to be aware of penalty fees. These fees come into play if you decide to access your funds before your term ends. Typically, these penalties are calculated based on the withdrawn amount and the remaining term of your deposit. The actual charges can vary from one lender to another, so it's wise to check the penalty fee amount before committing to a term deposit.

For a comprehensive breakdown of any potential fees, take a look at the Product Disclosure Statement (PDS) for the term deposit account. This document will outline all associated costs and the various terms and conditions you need to meet for the highest interest rate. If you have specific concerns or questions, it's a good idea to reach out directly to the financial institution for clarification.

Can I withdraw money from a term deposit?

When it comes to term deposits, it's important to understand the rules around early withdrawals. While the general assumption is that you'll keep your money locked away in the bank for the full duration of the agreed term, some banks do offer the option to withdraw part or all of your funds early. However, it's sensible to be aware that penalties may apply.

If you find yourself needing to access some or all of the money in your term deposit before the term ends, you'll typically have to provide advance notice to the bank. This notice period is often around 31 days, giving the bank sufficient time to process your request and make the necessary arrangements. Keep in mind that failing to provide the required notice may result in additional penalties or restrictions on your withdrawal.

In addition to the notice period, early withdrawal from a term deposit often incurs a penalty fee. This fee is typically a percentage of the amount being withdrawn or a predetermined fixed amount, depending on the terms and conditions set by the bank. It's important to check the specific details of your term deposit agreement to understand the exact penalty fee structure.

Moreover, making early withdrawals from a term deposit can have an impact on the interest rate you earn. Some banks may reduce the interest rate applicable to your term deposit if you choose to withdraw funds before the agreed-upon term ends. This adjustment in interest rate means that the overall return on your investment may be lower than originally anticipated.

If there is a possibility that you may need to access your funds before the term matures, it may be worth exploring alternative investment options that provide more flexibility without incurring penalties or reduced interest rates.

Ultimately, understanding the terms and conditions of your term deposit, including any penalties and notice requirements for early withdrawals, is vital in making informed decisions about managing your money effectively and maximising your returns.

What are the benefits of term deposits?

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. 

What are the drawbacks of term deposits?

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.

Benefits

  • Low maintenance
  • Relatively low risk
  • Can help you manage your spending and save
  • Predictable returns
  • Deposits are likely secure, some with government guarantees

Drawbacks

  • Harder to access your money
  • Won't benefit if variable rates rise
  • Lower returns compared to some of the riskier investment options
  • Lack of flexibility

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 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.

What do I need to 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

How to find and apply for a term deposit

  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.
Fact Checked

This article was reviewed by Personal Finance Editor Peter Terlato before it was published as part of RateCity's Fact Check process.

Frequently Asked Questions

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.

Are term deposits compounded?

Term deposits can be compounded, depending on what you choose to do with the interest.

There are two ways to receive interest from a term deposit: either a lump sum at maturity; or paid on a regular basis, usually monthly. If you get your interest paid regularly, you can get it paid into a transaction account, or back into the term deposit account. By using this second option, you’re getting interest paid on your interest. In other words, it’s compounding.

Having the money paid into a transaction account means you can access it for your day-to-day spending, while compounding the interest means you get a better overall return on your investment. Both have advantages, depending on your needs, but be aware that some term deposit accounts that pay interest regularly may offer a lower interest rate to offset the effect of compounding.

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.

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.

Is term deposit interest taxable?

The interest that you earn from your term deposit is considered taxable income. Because your term deposit interest is taxable, it should be disclosed on your annual tax return.

It’s important to note that circumstances may differ depending on whether you provided the account holder with your tax file number (TFN). If you did not supply your bank or other financial institution with your TFN, they are typically required to withhold tax from your interest earnings.

If you’ve invested in a deposit that lasts longer than 12 months, you’ll need to claim your earned interest in the year that you received it. For example, if you receive interest monthly, you’ll need to claim your earnings at the end of the financial year. However, if you only receive interest at maturity, you should claim your earnings in the year that you received the lump sum of interest.

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^Words such as "top", "best", "cheapest" or "lowest" are not a recommendation or rating of products. This page compares a range of products from selected providers and not all products or providers are included in the comparison. There is no such thing as a 'one- size-fits-all' financial product. The best loan, credit card, superannuation account or bank account for you might not be the best choice for someone else. Before selecting any financial product you should read the fine print carefully, including the product disclosure statement, target market determination fact sheet or terms and conditions document and obtain professional financial advice on whether a product is right for you and your finances.