# 6-month term deposits

By on March 25,2020

Photo by Jeshoots on Unsplash

Looking for somewhere to stash your cash for a few months while earning interest? Consider a six-month term deposit.

## Interest rates on 6-month term deposits

The cash rate is at a record low at the time of writing (0.75% as at February 2020), and as term deposit rates historically follow the cash rate, they’re also at a record low. The average term deposit rate from the big four banks across all terms is just 1.15% p.a, according to Reserve Bank data, while Savings.com.au’s analysis of a broader section of the market found an average closer to 1.40% p.a.

Six-month term deposits will almost always have lower interest rates than term deposits with longer terms because banks often want to encourage people to keep their funds deposited for longer periods. Our research finds the average six-month term deposit interest rate to be 1.49% p.a as at January 2020, which equates to a return of around 0.75% over six months.

There are some six-month deposit rates that are much higher than this, however. The table below showcases some of them:

Provider
interest rate
Interest
frequency

2.12% Monthly, annually,
end of term
Term Deposit
1.80% End of term
Term Deposit
1.85% End of term
1.90% End of term
1.85% End of term

*Rates correct as at 01 April 2020. Rates based on a \$50,000 deposit for 6 months.

## What is a 6-month term deposit?

The six month part is the ‘term’ on the deposit, and your deposit is the amount of money you stash away. Put the two together and you get a six-month term deposit, where you lock away your money for half a year and are unable to touch it without incurring a penalty. A six-month deposit is one of the shortest terms available, although you can get term deposits for as little as one month. Other common terms include:

• 9 months
• 18 months
• Two years
• 30 months
• Three years
• Four years
• Five years

With a six-month term deposit, your total return is equal to half the annual interest rate, since you only have the term deposit for half a year. So say, for example, you have a 1.80% p.a. (per annum) interest rate on a \$10,000 deposit for six months (paid at maturity), your total return is actually 0.90%. Since term deposits are usually calculated using simple interest, that \$10,000 deposit would earn you \$90 at the end of a six-month term.

## Why pick a 6-month term deposit?

A six-month term deposit can be a great way to save money short-term. While the interest you’ll earn mightn’t be terrific, that money is still being stashed away in a safe place where you’ll be less tempted to touch it. If you want to go on an overseas holiday, for example, you could open a six-month deposit to lock away your savings and earn a little bit of cash on the side.

On the other hand, you could open an introductory savings account which offer higher interest rates for a limited time (e.g. three months) that could be perfect for a short-term savings goal.

Longer term deposits exist, such as one- or five-year terms, and these products generally have much higher interest rates. But the main disadvantage for these products, as we’ll discuss further down, is that your money is locked away for much longer, and could leave you worse off if you ever need to access the funds or interest rates go up.

## Frequently asked questions

#### 1. What does a term deposit mean?

The word ‘term’ for term deposit is a length of time, which can be anything from one month to five years. And ‘deposit’ means locking your money away with a bank for that term. So a ‘term deposit’ is a secure banking product where you store a set amount of money away for a pre-specified length of time in return for a fixed amount of interest.

#### 2. 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.

#### 3. 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.

#### 4. 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.

#### 5. 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.

#### 6. 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.

#### 7. How is interest calculated on a term deposit?

Term deposit interest is usually calculated on a simple basis: as a percentage of your initial investment. If, for example, you deposit \$10,000 for one-year at a 2.00% interest rate, then at maturity you’d have earned \$200 in interest.

There are a very small number of term deposits in Australia that allow interest to compound, although the interest rates on these products tend to be low.

### Latest Articles

William Jolly joined Savings.com.au as a Financial Journalist in 2018, after spending two years at financial research firm Canstar. In William's articles, you're likely to find complex financial topics and products broken down into everyday language. He is deeply passionate about improving the financial literacy of Australians and providing them with resources on how to save money in their everyday lives.

## Latest News

### Get free insights & tips monthly

By subscribing you agree to the Savings Privacy Policy

## {{returnData.productName}}

### Overview

Current Rate

{{returnData.currentRate | percentage:2}}

Comparison Rate*

{{returnData.comparisonRate | percentage:2}}

Rate Type

{{returnData.rateType}}

Comparison Rate*

{{returnData.comparisonRate}}

Monthly Repayment

{{returnData.monthlyRepayment}}

Interest Type

{{returnData.interestType}}

Total Interest Rate

{{returnData.totalInterestRate | percentage:2}}

Base Interest Rate

{{returnData.baseInterestRate | percentage:2}}

Bonus Interest Rate

{{returnData.bonusInterestRate | percentage:2}}

Total Interest Rate

{{returnData.totalInterestRate | percentage:2}}

Introductory Rate

{{returnData.introductoryRate | percentage:2}}

Introductory Term

{{returnData.introductoryTerm}}

Base Interest Rate

{{returnData.baseInterestRate | percentage:2}}

Term

{{returnData.term}}

Interest Frequency

{{returnData.interestFrequency}}

### Fees and Features

Ongoing Annualised Fee

{{returnData.annualFee}}

Upfront Fee

{{returnData.upfrontFee}}

Offset Account

Redraw

Principal & Interest

Interest Only

N/A{{returnData.interestOnly}}

Max loan to value ratio (LVR)

{{returnData.maxLVR | percentage:0}}

Lump sum repayments

N/A

Maximum Loan Term

{{returnData.maximumLoanTerm}}

Upfront Fee

\${{returnData.upfrontFee}}

Ongoing Monthly Fee

{{returnData.ongoingFees}}

Early Repayment Fee Applies

N/A

Vehicle Types

{{returnData.vehicleType}}

Maximum Vehicle Age

{{returnData.maximumVehicleAge}}

Pre Approval Available

N/A

Online Application

N/A

Account Keeping Fee

{{returnData.accountKeepingFee}}

Minimum Monthly Deposit

{{returnData.minMonthlyDeposit}}

N/A

Interest Calculated

{{returnData.interestCalculated}}

Interest Paid

{{returnData.interestPaid}}

Online Application

N/A

ATM

N/A

EFTPOS

N/A

Account Keeping Fee

{{returnData.accountKeepingFee}}

Minimum Monthly Deposit

{{returnData.minMonthlyDeposit}}

N/A

Interest Calculated

{{returnData.interestCalculated}}

Interest Paid

{{returnData.interestPaid}}

Online Application

N/A

ATM

N/A

EFTPOS

N/A

Minimum Deposit

{{returnData.minDeposit | currency : '\$' : 0}}

Upfront Fees

{{returnData.upfrontFee | currency : '\$' : 0}}

Annual Fees

{{returnData.annualFee | currency : '\$' : 0}}

Notice Period to Withdraw

{{returnData.noticePeriodToWithdraw}}

Online Application

N/A

Automatic Rollover

N/A