- Term deposit providers typically charge an interest rate penalty for early withdrawals.
- The earlier into the term you withdraw, the greater the penalty.
- Some banks may not penalise early withdrawals if you're within a cooling off period, or experiencing financial hardship.
Term deposits are a popular low risk investment with fixed returns. The downside is that you generally can't withdraw any of your investment before the term finishes without a significant deduction on your earnings.
How term deposits work
Term deposits are a fixed investment where you leave your money deposited with a bank for a pre-agreed term and earn interest. They differ from savings accounts in that you aren't supposed to access the money whenever you like - you usually need to leave your deposit untouched for the entire term to receive all the interest you've accumulated.
You can usually choose to have your interest paid as a lump sum once the term finishes, or at more regular intervals (quarterly, monthly etc.) in exchange for a slightly discounted interest rate.
Term deposits in Australia can range from one month to five years. Whether longer or shorter terms have higher returns can depend on interest rates and future expectations:
Current interest rates on term deposits
Below are some of the highest term deposit rates on market.
| Bank | Term Deposit | Interest Rate | Interest Frequency | Term | Automatic Rollover | Maturity Alert | Early Withdrawal Available | Minimum Deposit | Maximum Deposit | Notice Period to Withdraw | Account Keeping Fee | Online Application | Joint Application | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.35% p.a. | Annually | 12 months | $1,000 | $1,000,000 | – | – |
| Promoted | Disclosure | ||||||||||
5.35% p.a. | At Maturity | 6 months | $5,000 | $19,999 | – | – | |||||||||||||
5.15% p.a. | At Maturity | 6 months | $1,000 | $1,000,000 | – | – |
Early exit fees on term deposits
Banks generally penalise customers that withdraw their funds before the term concludes, through reduced interest or break fees.
Deposit products are an important part of a bank's funding. When you deposit money with a bank, it uses it to write loans for other customers - a fundamental part of how a modern economy works. Term deposits are useful for banks because they are a more reliable source of funds, since customers are supposed to leave their deposit untouched for a pre-determined length of time. Banks therefore want to disincentivise early withdrawal as much as possible.
Many term deposit providers also require at least 30 or 31 days notice for an early withdrawal.
Penalty interest rate
Some banks don't charge break fees, but most will apply interest rate reductions.
The way interest reduction works is straightforward - your final interest payment is reduced based on how much of your term has expired. The more of the term you've seen out, the less your interest bill will be deducted. If you received regular interest payments such that by the time you withdraw early the bank can't withhold the full reduction, it may take it from the principal amount.
Interest rate reduction policies among banks are typically as follows:
| 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% |
Say you had $10,000 on a 3.00% p.a. interest rate three-year term deposit but asked to withdraw after three months months for financial reasons. You should have earned about $75, but because you withdrew in the first 20% of the term, your earnings are reduced to just $7.5, or a 0.3% interest rate.
The further into the term you are, the less your interest will be reduced by. For longer term deposits that have interest paid in instalments, you may even have to repay some interest, as these calculations are based on a lump sum payment.
In addition to an interest reduction, it’s not uncommon for certain providers to also charge a break fee, also called an early termination fee or just a termination fee. This fee isn't usually more than about $30, but for smaller deposits of under $10,000 – this fee eat up a large chunk of your annual returns.
The best way to find out what your potential withdrawal fees are is to read the Product Disclosure Statement (PDS) to see for yourself, which your chosen bank is legally obligated to provide.
Is there always an early withdrawal fee?
In most situations you’ll be faced with early withdrawal penalties on your term deposit, but not always. There are a few situations you could find yourself in that allow you to break the term for free.
Within the cooling off period on automatic rollover
Term deposits can have something called 'automatic rollover' where your term deposit automatically start again once maturity has been reached unless you give them instructions otherwise. If you're on a one year term deposit and you don't notify your bank after the year elapses, it automatically rolls into a new TD at whatever the new one year rate is.
Many institutions include automatic rollovers in their term deposits. By law, institutions are required to contact you when your term deposit is due to rollover into another one. If you fail to respond to the institution, your term deposit may rollover automatically
If your term deposit rolls over before you had a chance to stop it, there’s usually a cooling off period where you can cancel and withdraw from the new term without incurring any penalties, typically around seven days.
Financial hardship
In Australia, financial hardship is defined as:
When someone is willing but unable to meet their debt obligations due to unforseen changes and circumstances, such as changes in income & employment status, injury or illness, significant life events and emergencies as well as natural disasters
Someone in hardship is also someone who can reasonably be expected to recover their financial position if special arrangements were made. Financialerights.org.au has a sample hardship letter you can send to your provider in the event that you are suffering from hardship and would like to access your term deposit funds – most institutions have a hardship team who are required to take these requests seriously.
By applying for financial hardship with your bank, you may be able to withdraw your funds without penalty but may still have to wait out the notice period (some banks may waive this if you're in extreme hardship).
Savings.com.au’s two cents
For starters, try not to withdraw early unless it’s absolutely necessary – you’re potentially missing out on substantial interest earnings, not to mention the agony of jumping through hoops and waiting the minimum amount of days specified by the provider. Ideally, you’d want to withdraw funds from other sources first, such as your trusty savings account.
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 hitting a button online and you might have to call or physically visit a branch and speak to a customer care specialist.
Remember: there is no legal requirement for your provider to break your term deposit early. Although most should approve your request, there’s always a chance that they won’t. You need their approval before your funds can be withdrawn.
But you should really try to avoid having to withdraw before maturity, as it’s an unnecessary complication. Only deposit money you can afford to go without and try to have a stash of emergency savings, perhaps in a savings account.
Article first published by William Jolly, last updated February 2025.