Compare high-interest term deposits

Compare more term deposits

Term deposit guides

Are term deposits a good investment?

Term deposits are an ever-popular product, but does being popular make them a worthwhile investment in the present financial climate?

Term deposit early exit fees

Term deposits can be a great investment tool for the more risk-averse investor, but withdrawing from your term deposit early can cost you.

Term deposit automatic rollover

If you’re not careful, this condition can leave your money stuck in a term deposit you didn’t want.

What affects term deposit rates?

While term deposit interest rates are fixed over the course of your term, banks can still change the rates they offer on new deposits and rollovers. Understand the internal and external factors that influence these movements.

Fixed vs variable home loans

Term deposits and savings accounts are widely considered to be the safest places to park your cash, but the combined effects of inflation and tax can make the interest earned on your account redundant.

What about government bonds?

Here’s why you might consider adding government bonds to your investment portfolio.

What is a term deposit?
Who offers term deposits?
Government guarantee on deposits
What are the interest rates on term deposits?
How is interest on term deposits calculated?
Do term deposits charge fees?
What features do term deposits offer?
How do you open a term deposit?
What are the pros & cons of term deposits?
How do you choose the right term deposit?

What is a term deposit?

Term deposits (also known as TDs) are a basic low-risk investment product. With a term deposit, you deposit a lump sum of money in a financial institution for a set term in exchange for a fixed rate of interest. When the term is over, you receive the interest on the amount you deposited.

Different term deposits can have fixed terms between one month and five years. The end of the term is known as ‘maturity’.

Term deposits are popular among risk-averse investors who want a near-guaranteed return on their investment.

Who offers term deposits?

Only Authorised Deposit-taking Institutions (ADI) can offer term deposits in Australia. These include banks, credit unions and building societies. You can view a list of Australian ADIs on APRA’s website here.

Government guarantee on deposits

The Australian Government guarantees deposits up to $250,000 with ADIs. This means if your bank (an ADI) were to collapse, you can recover up to $250,000 of your deposited money (e.g. money in term deposits, savings accounts, home loan offset accounts etc.) with that bank from the government. This applies per person and per ADI, so you can have multiple guarantees with different ADIs, but only one with the same ADI.

Between October 2008 and February 2012, the guarantee covered deposits up to $1,000,000 as a temporary measure to help guide Australia’s banking sector through the Global Financial Crisis.

Because of the government guarantee, term deposits are generally considered to be a very low-risk investment, albeit with low returns.

What are the interest rates on term deposits?

Term deposits earn very similar interest rates to savings accounts and are heavily tied to the cash rate. Given Australia’s record-low cash rate, you’ll struggle to find a term deposit paying over 2.00% p.a. Term deposit interest rates are fixed, but they tend to vary depending on the term you choose (that’s how long you deposit your money for). Term deposits with longer terms tend to have higher interest rates than ones with shorter terms (to encourage customers to lock their money away for longer periods of time so the bank can use this money for funding), although as you can see by the average three-month term deposit rate, this isn’t always the case.

How is interest on term deposits calculated?

How interest is calculated will depend on a few things, but mainly: the size of your deposit, how long your term is, the interest payment frequency and compounding. We said before that longer-term deposits are more likely to pay higher interest rates. This is mostly true, but the frequency of repayments can lead to varying interest rates on the same term.

Do term deposits charge fees?

The majority of term deposits products are fee-free – you’d be hard pressed to find any that charge monthly account-keeping fees or introductory fees like other products. You’ll find most term deposits do charge a fee or a penalty for early withdrawals though. This can either be a flat fee or a tiered ‘interest rate reduction’ that lowers your fixed rate depending on how long you have left in your term.

Percentage of the term elapsed Interest rate reduction
0% to 20% 90%
20% to 40% 80%
40% to 60% 60%
60% to 80% 40%
80% to 100% 20%

What features do term deposits offer?

Term deposits are very basic investment products, so you aren’t likely to find one stuffed with advanced features. The main things to look at is the interest rate and the term you want to invest for. A good term deposit product should offer a variety of terms with different interest rates for you to choose from.

That being said, there are a couple of other factors to consider when choosing a term deposit:

  • Is it easy to set up? More and more banks are starting to offer term deposits through online and mobile banking – can you easily log in, open a term deposit and view your balance online?
  • Automatic rollover. At maturity, certain providers will automatically ‘rollover’ your term deposit into a new one unless you expressly tell them otherwise. Remember that term deposits are difficult to withdraw from during the term, so you might not want a term deposit that does this. Make sure you read your product’s terms and conditions before opening and keep track of the end date to let your bank know you want to withdraw.

How do you open a term deposit?

Opening a term deposit can be a straightforward process. You’ll just need to provide: your personal details (name, address, phone number), proof of ID (driver’s license, Medicare card), tax file number and a nominated bank account for your funds to be deposited into at maturity.

You will need to nominate with your bank what term you want to invest for, and the corresponding interest rate. Be aware that some term deposits require a minimum investment too. The minimum is usually around $500-$1,000 but can be in excess of $100,000 for some certain term deposit products.

To actually open the term deposit, you can either do it online or by visiting a local branch. Some institutions might require you to be an existing customer to open a term deposit online.

What are the pros and cons of term deposits?

To summarise all of the above info, here’s a table of the pros and cons of term deposits:

Pros Cons
  • They’re a safe and stable investment
  • Virtually no risk – you have a government guarantee of up to $250,000
  • Fixed rates so you know exactly what your returns will be ahead of time
  • Your money is locked away, so there’s no temptation to spend it
  • Very few have upfront or ongoing fees
  • No effort to maintain – set and forget!
  • Interest rates are low at the moment – you’ll struggle to earn more than 2.00% p.a.
  • Fixed rates so your rate won’t rise if the cash rate rises
  • They’re not a flexible option and have very few features
  • Not being able to withdraw your money easily isn’t ideal at times when money is short
  • There are hefty interest rate reductions for early withdrawals
  • No topping up term deposits with extra cash

How do you choose the right term deposit??

If you do decide to go with a term deposit, then you should look to consider everything we’ve discussed above:

  • What are you investing for?
  • How long do you want to invest for? Compare the terms.
  • What interest rate do you want?
  • Will you need to withdraw the money at any time? Look at the fees and penalties.
  • Do you want the interest paid at maturity or non a regular basis?
  • Are there any products offering compound interest?
  • Can you apply for and close the term deposit online?
  • Will it automatically rollover at maturity? Are you ok with this happening?

Frequently Asked Questions

Are term deposits worth it?

There’s no one answer to this question. It depends what you’re after. Term deposits might be a good choice if you’re looking for a relatively safe, cash-only investment for a specified period of time at a locked-in interest rate. But if you’re looking for a high rate of return, you might need to look elsewhere.

Compare term deposits here to see some high term deposit interest rates.

How safe are term deposits?

Term deposits are generally considered to be a very safe investment as there’s little to no chance of losing your money.

To offer term deposits a bank must be a registered ADI (authorised deposit-taking institution), and any ADI is covered by the Australian government guarantee, which protects your deposits up to $250,000 per bank.

So if your bank collapses (which almost never happens), up to $250,000 of your money will be returned to you.

Can you add money to a term deposit?

No, with the vast majority of term deposits you cannot add money to them during the length of the fixed term. Some banks offer an exception where you can add or withdraw money during the grace period, but this is usually only about a week or so after opening or renewing the deposit.

Are term deposit interest earnings taxable?

Yes, interest earned on term deposits is taxable, just as your regular income or savings account interest is.

Term deposit interest earnings are to be included in your annual tax return. If your term deposit pays interest at maturity after three years, then you’d only list it as taxable income after that final third year. But if it pays interest annually, then you’d need to include it in each financial year’s return.

Can you withdraw a term deposit early?

You can withdraw early from a term deposit, but unless you’re experiencing financial hardship, you usually can’t do so without facing a penalty.

In addition to requiring up to 31 days notice, most banks will also charge an interest rate reduction relative to the length of your term that’s expired. You may also be charged an early termination (or break) fee.

How does a term deposit work?

Term deposits are a very simple product: you deposit a lump sum of money into a financial institution in exchange for a fixed rate of return over a specified period.

What is a 'term'?

The ‘term’ in term deposit is the fixed amount of time your money is deposited with that financial institution.

What terms are available?

Each ADI (authorised deposit-taking institution) that offers term deposits will have different terms on offer. Some will offer only a few, while others will provide a huge variety of options, from one month to five years.

Why do people invest in term deposits?

One of the main reasons people invest in term deposits over other investment assets is for safety. Since the Banking Act 1945, deposits with authorised deposit-taking institutions (ADIs) have benefited from high levels of regulatory protection that minimise the risk of losses. This protection was greatly strengthened with the introduction of the government deposit guarantee in 2008, which made term deposits virtually risk-free.

Why do banks offer term deposits?

Deposits make up a significant portion of funding for banks, which they use for various things. If you've ever wondered where your home loan lender got the money for your house from, there's a good chance some of it came from term deposits.

What is a special term deposit rate?

A special term deposit rate doesn’t technically have a set definition, but you might call it one that sits outside a bank’s usual range of interest rates for term deposits. A special term deposit rate is usually a fair bit higher than most other term deposit rates, and usually can only be earned by those that meet a set of requirements.

What is a term deposit loyalty bonus?

A term deposit loyalty bonus is a bonus little bit of interest you can get on top of the advertised term deposit rate, and they usually apply if you choose to roll over your term deposit or take out a new one with the same institution.

What happens when my term deposit matures?

If you want to keep your money in a term deposit after it matures, you might appreciate the convenience of an automatic rollover. If that’s the case, and you’re happy with the new interest rate and term you’re rolling over into, you can sit back and let the bank do all the work.

Are there penalties for early withdrawal?

This will vary between providers, just as the terms and interest rates on term deposits do. Some banks might not charge break costs, but most do apply interest rate reductions.

What to do if I need to access my money?

If you do need to make a withdrawal, then you will first need to contact your bank to let them know of your intentions. Cancelling a term deposit isn’t always as easy as simply hitting a button online. You might have to call them or physically visit a branch and speak to a customer care specialist. There should be details on how your specific provider handles early terminations, but you should make an effort to find out before you take out a term deposit.