Term Deposits

A term deposit can offer you security and peace of mind with your cash investment while guaranteeing your rate of return.

Last updated on June 22nd, 2022 at 03:50 pm by Adrian Edlington

Compare term deposits

If you’re looking for a safe, effective way to grow your savings, a term deposit could be the right option to suit your needs. Find out everything you need to know about bringing together the most attractive term deposits from across the country to take the guesswork out of comparing and selecting the best option for you.    

site-logos Citi Term Deposit
  Maximum Rate Interest Rate Minimum Deposit Government Guarantee  
site-logos 2.25%
1 Year
1.00% $10,000 Yes
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$0 Set up and no ongoing account-keeping fees. Interest rate depends on balance amount. Optional 3,6,9 or 12 month terms. Balances from $10,000.

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What are term deposits and how do they work?

Term deposits are a type of cash investment that banks and other financial institutions offer as an alternative to savings accounts. The key drawcard of term deposits is that because they are a cash investment, they avoid the unpredictability of the share market or property market. The agreed interest rate and agreed term of investment make term deposits a safe, simple and easy to manage way of investing your cash.

When you invest your money in a term deposit, you lock in an agreed interest rate and an agreed timeframe for investment. The interest rate is set by the bank, building society or credit union offering the term deposit. Which interest rate you get can depend on how long you want to invest for and how much money you’re looking to put away. Depending on the length of your term deposit, you may be able to choose if the interest is paid to you at maturity, or over the life of the investment.

Most institutions allow you to hold a term deposit for anywhere from one month to five years. Once you reach the end of your agreed investment period, the term deposit is said to have reached ‘maturity’ or have ‘matured’.

What is the difference between a term deposit and a savings account?

Term Deposits differ from savings accounts in two main ways:

  • The interest rate

A Term Deposit has a fixed interest rate. This means that how much interest you earn is guaranteed not to change for the whole time it’s invested. A savings account is usually on a variable interest rate; which means that the interest you make on your money can move up and down when the financial institution changes its interest rates.

  • The money is ‘locked in’

Typically, with a savings account, you have access to your money so that you can add more funds to grow your savings balance or withdraw them if you need to. A Term Deposit is different because the amount you choose to invest can’t be added to.

Also, because you have agreed to invest your money for a set period of time, you can only access the funds by providing 31 days’ notice and generally incur a penalty for doing so.

How is interest calculated on term deposits?

Term deposit interest is calculated using the interest rate agreed upon, the amount of money deposited and the length of time it’s locked in for.

The standard method of calculating simple interest on a term deposit is:

Interest  =            amount           X    rate %       X          number of days

                            invested              per annum                         365

For term deposits with a longer term, you’ll sometimes have different options when it comes to receiving your interest payments. Term deposit interest can be paid every four weeks, every 6 months, annually or at maturity. You also have the option of choosing whether you would like to have the interest paid into a nominated bank account or added back into the term deposit balance. If you choose to add the interest to the term deposit amount, you are ‘compounding’ your investment.

Interest paid to you: With this option, you’ll have access to your return and could receive a little bit of interest every 4 weeks if you choose. You’re able to spend the interest without breaking the term deposit. However, you will miss out on being able to grow your term deposit balance and access the benefits of compound interest.

Interest added back into the term deposit (compounded): You’re able to grow your investment without spending the interest. If you choose to have it paid frequently throughout the term, you’ll also start to compound your interest —this means, growing your balance, then earning interest on the higher balance every time interest is calculated and paid.

Are there any fees on my term deposit?

Yes, but only usually one – accessing your funds early will incur a fee. When you invest your money in a term deposit, you enter into an agreement with your financial institution. They invest and lend money on a large scale to earn a rate of return to then pay onto you. Accessing your term deposit money before its maturity date is commonly referred to as ‘breaking’ the term deposit. By breaking your term deposit, you’re dishonouring the agreement you made and taking away funds for the bank or credit union to lend or invest.

 If you choose to break your term deposit, you will generally need to provide at least 31 days’ notice. Further to your notice period, you will also incur either a fee (usually around $30) or an interest adjustment, or both, as a penalty. If you have less than 31 days until your maturity date, you may need to wait until maturity to have access to the funds.

When you access your term deposit early, the interest you receive depends on how much time is left on the agreed term. The interest is usually progressively reduced the earlier you break your term deposit. For example, if less than 20% of the term has passed when you break your agreement, the interest will be reduced by 90%. But breaking after 80% of the term has passed will mean your interest is reduced by only 20%. These figures are for illustrative purposes only and the amount your interest may be reduced depends on who your term deposit is with.

While there are break fees to consider, however, term deposits are renowned for being an otherwise low or no fee investment option.

Are term deposits safe?

Term deposits hold a very strong reputation as one of the safest and most low risk investments. The term ‘no risk investment’ doesn’t usually exist in the financial world, because even storing cash under your pillow at night runs the risk of being lost, stolen or not keeping up with the value of money over time.

The safety of term deposits comes from being a cash investment. This means that you aren’t buying shares, or property, or any other form of investment that is subject to volatility. Further to this, the Australian Government provides a backup under its Financial Claims Scheme (FCS).

In the unlikely event that your bank, credit union or building society fails, the Financial Claims Scheme offers protection of up to $250,000 per account holder, per deposit-taking institution. The only way you could lose money in a term deposit would be if the bank and the government failed. This is extremely unlikely to happen.

How do I compare term deposits?

The Pros and Cons of investing in term deposits

PROS

Low risk

Without being beholden to any market movement, and as your money sits untouched, it’s one of the safer ways to increase your savings

Straightforward to understand

Term deposits are far from complicated: essentially, you make your term deposit, you leave it and it accrues interest

Set rate of return that’s guaranteed

A fixed interest rate means that you’ll be sure to receive return on investment in the form of interest

No upfront or ongoing fees

You won’t have to worry much about fees being charged to your on your term deposit

Government guarantee

Even if your financial institution fails for whatever reason, you’ll be guaranteed for up to $250,000 in your term deposit

CONS

Unable to access rate rises

You could miss out on interest rate rises due to having locked in your rate at the start of your term

Lower return on investment

Interest rates may only be marginally better than other cash investments you may have access to

Not easily accessible

If you need the money, you’ll have to pay a fee and give ample advance warning, as well as potentially lose out on interest, to access funds from your term deposit

No extra deposits

You’re unable to add any extra savings to your term deposit whilst it’s locked away

Other frequently asked questions about term deposits

Is a term deposit right for me?

Term Deposits are a good option for people looking for capital security (where they know their balance isn’t at risk of dropping) and who don’t need to access their money.

How much can I put in a term deposit?

Each financial institution can have a different minimum amount ranging from $500-$5,000 and usually there is no maximum amount you can invest.

Do I need to have a bank account with the same institution I apply for a term deposit with?

Most banks, credit unions and building societies won’t need you to be an existing customer or hold other products in order to have a term deposit with them.

Is there an approval process to be able to deposit money into a term deposit account?

You don’t need to be approved. Applying for a term deposit is very similar to a bank account – you just need identification documents and available funds.

What are the tax implications of a term deposit?

The interest that you earn on a term deposit may be subject to income tax (similar to all other interest-bearing bank accounts). The financial institution may withhold additional tax from the interest if you don’t provide a Tax File Number (TFN), Australian Business Number (ABN) or if you are a non-resident of Australia.

How do I know when my term deposit is approaching maturity?

When you first set up your term deposit, the maturity date will be communicated to you. You’ll generally be able to check the details through an online portal. You will also receive correspondence a short time before maturity to ask you what you’d like to do with the funds. If you fail to act on this correspondence after your term deposit reaches maturity, it may automatically enter a new term, meaning you’ll have to pay a fee to access your funds.

Are term deposits worth it?

Yes. Term deposits provide a safe, guaranteed return with essentially zero risk.  The return on investment may not be as high as higher-risk investments, but you are also protected against the potential loss that comes with those. If you’re looking for certainty, term deposits are worth it.