- Term deposits are a low risk investment, but tend to have lower returns compared to growth assets like shares.
- If you're extremely cash rich, you might be able to live exclusively off term deposit earnings.
While your earning ceiling is higher if you invest in shares or the property market, the advantage of term deposits is it's largely risk free, with a guaranteed income. When you lock in a three-year term deposit, the bank will honour that rate even if interest rates drop dramatically in that time. But is it viable to live exclusively off the interest you earn from a term deposit?
How much can you earn from a term deposit?
Term deposit rates change over time, depending on the RBA cash rate and how it looks like rates will develop moving forward. The fluctuations can be dramatic - according to the RBA the average three year TD rate in August 2021 was just 0.25% p.a. compared to January 2011 when it was 6.15% p.a.
Below are some of the top rates available on the market right now:
| 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. | At Maturity | 6 months | $5,000 | $19,999 | – | – | |||||||||||||
5.20% p.a. | At Maturity | 6 months | $10,000 | $5,000,000 | – | – | |||||||||||||
5.15% p.a. | At Maturity | 6 months | $1,000 | $1,000,000 | – | – |
Who can live off term deposit rates?
Here's how much you could earn each year at for various rates and deposit sizes:
| Deposit size | Annual earnings at 1% p.a. | Annual earnings at 3% p.a. | Annual earnings at 5% p.a. |
|---|---|---|---|
| $10,000 | $100 | $300 | $500 |
| $100,000 | $1,000 | $3,000 | $5,000 |
| $1,000,000 | $10,000 | $30,000 | $50,000 |
| $10,000,000 | $100,000 | $300,000 | $500,000 |
Regardless of how rates are looking, you need to be extremely cash rich to have a chance at earning a liveable income from term deposits, regardless of rates. For context, according to the ABS the net worth of the average Australian adult as of June 2024 was about $770,000 (total household wealth divided by the voting age population). According to Forbes, the net worth of Gina Rinehart (currently the richest individual in Australia) was $29.3 billion in 2025 - here's how these two sums would translate into term deposit earnings assuming all assets are liquidated and put into a term deposit:
| Deposit size | Annual earnings at 1% p.a. | Annual earnings at 3% p.a. | Annual earnings at 5% p.a. |
|---|---|---|---|
| $770,000 | $7,700 | $23,100 | $38,500 |
| $29.3 billion | $293 million | $879 million | $1.465 billion |
So if the average Australian sells their home and everything else they own and puts it all into term deposits, the best they can hope for is to earn less than half the average salary. Were Gina Rinehart to do the same on the other hand, her annual income could be over $1 billion - although on balance we think this is unlikely to eventuate.
Are term deposits guaranteed?
In Australia deposit products are covered by the Financial Claims Scheme (FCS). That means in the unlikely event your bank collapses, the Australian Government will step in to make you whole.
The FCS only applies up to $250,000 with each bank. If you're living off $2,000,000 in a single deposit product, you aren't guaranteed for $1,750,000 of your deposit. However, this shouldn't give you too much pause - if (again, this is very rare) your bank goes under depositors are prioritised over other creditors.
Minimum net worth to live off term deposits?
Another way to ask this question is what's the minimum sized deposit you'd need to earn a given income. Here's the deposit size you'd need for the various interest rates as well as different income targets:
| Looking to earn... | At 1% p.a. you'd need a deposit of... | At 3% p.a. you'd need a deposit of... | At 5% p.a. you'd need a deposit of... |
|---|---|---|---|
| $50,000 each year | $5,000,000 | $1,666,667 | $1,000,000 |
| $100,000 each year | $10,000,000 | $3,333,333 | $2,000,000 |
| $1,000,000 each year | $100,000,000 | $33,333,333 | $20,000,000 |
What happens if you break a term deposit early?
One major concern about living off term deposit income is what happens if there's an emergency and you need to access your funds before the term finishes. If this happens, penalties generally apply. These might include break costs (fixed fees you have to pay) or prepayment adjustments - a proportion of the interest you've earned that's withheld.
Most common are the following prepayment adjustments:
% of term elapsed | Prepayment adjustment (% of interest rate) |
0% to 20% | -90% |
20% to less than 40% | -80% |
40% to less than 60% | -60% |
60% to less than 80% | -40% |
80% to less than 100% | -20% |
If you're receiving monthly interest payments such that when you withdraw it's not possible for enough interest to be withheld the amount you owe might be deducted from your principal amount.
Say you have a $100,000 term deposit invested for one year at 5.45% p.a. You go to withdraw it after 100 days, after giving the appropriate notice.
Your accrued interest is $100,000 * 5.45%p.a /365 * 100 = $1,493.15
Prepayment adjustment is $1,493.15 * 80% = $1,194.52, which is deducted from the principal plus interest accrued. You would therefore only end up with $298.63 total interest.
This is a further constraint on the ability to live off term deposit returns. Penalty rates, particularly those incurred near the beginning of a term deposit, can be severe. In the above example, locking away $100,000 for more than three months resulted in a grand total of less than $300 in interest.
Savings.com.au’s two cents
If you're extremely cash rich you might be able to live off term deposits, but for the rest of us it probably isn't viable. That doesn't mean you should ignore them altogether though - term deposits are one of the safest investment options and can be a solid means to build wealth, particularly when rates are high.
Regardless of whether you're investing to live off or looking to diversify, it's important to consider all of your options. At any given time there can be massive variance between the TD rates on offer at different banks, and you also shouldn't restrict yourself to the majors. Smaller outfits like Judo Bank typically offer elevated returns compared to the big banks, so it's worth taking your time to find the strongest rates available.