Term Deposit Interest Rates

Find and compare the best term deposit interest rates in Australia right here with Savvy today.

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, updated on September 11th, 2023       

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Term deposits offer a means to grow your nest-egg and make your savings work harder for you.  Because they form such an important part of many people’s savings plans, term deposit interest rates need careful comparison to make sure you get the best deal available, which you can do right here with Savvy. 

We can help you compare term deposits from multiple financial providers and bring you accurate and up-to-date interest rate information and other important comparison details so you can make the right call and maximise your interest return on your deposit.

What are term deposits and how do they work?

Term deposits are an agreement between a customer and a financial institution to deposit (lock away) a specified amount of money for a certain period in return for a set interest rate.  The amount to be deposited (called the principal sum), the length of time it will remain locked up (called the term of the deposit) and the interest rate are all fixed at the beginning of the deposit period.

This type of deposit typically offers a higher rate of interest than a standard or high interest savings account.  Terms are available from a minimum of one month up to a maximum of five years.  You can choose the exact period over which you wish to lock your money up.  However, in most cases, you won’t be able to access those funds without providing sufficient warning, which may result in a penalty charge.

What influences term deposit interest rates?

The national cash rate

The banks and financial institutions typically set their interest rates based on the cash rate determined by the Reserve Bank of Australia (RBA).  Once the RBA has announced the cash rate, banks consider if they are going to hold, increase or decrease their own interest rates, both on loans and savings.  They aren’t legally obliged to match any changes announced by the RBA but, in the past, the major banks have traditionally followed the RBA’s lead.

The term of your deposit

Additionally, the longer the term you choose, and the more you deposit, the higher the interest rate you’re likely to be offered.  This is called a ‘tiered’ interest rate system.  Interest rates rise as the size of your deposit and term length grow.  For example, a bank may offer a six-month interest rate of 0.65% p.a. for a term deposit of $5,000.  This may rise to 1.25% if you agree to a term deposit of one year.  If you have $50,000 to deposit, the interest rate offered could be as high as 2.5% p.a. if you agree to park your funds for a minimum of two years.

The frequency of your interest payments

The frequency with which you receive your interest also affects the interest rate you receive.  You have a choice as to whether you receive your interest monthly, every three months, quarterly, annually or at the maturity of your deposit.  Generally, if you choose to receive your interest annually or at maturity you’ll get a better interest rate, but you’ll lose the compounding effect of earning ‘interest on interest’ if you choose to have your interest paid back into your term deposit on a more regular basis.

Where are interest rates heading?

In November 2020, Australia’s official cash rate reached its lowest level in history at 0.1% p.a. and remained there for the next 15 months.  However, in May 2022, the RBA increased the official cash rate by 0.25% p.a. for the first time since early 2010, signalling that the tide has turned and interest rates may now be on their way up again (in response to a rising 5.1% inflation rate).  The RBA anticipated further rate rises in 2022.

In response to this increase in the official cash rate (up to 0.35% p.a.), most banks and financial institutions raised their interest rates. This is good news for those looking to lock their money away in a term deposit, as it means their savings will likely earn a higher rate of interest.

How should I compare term deposits?

Naturally, the interest rate you receive for your term deposit will be the most important factor when deciding which financial institutions to park your savings with.  For instance, on a $15,000 deposit over three years with interest paid monthly, you’d earn an extra $225 in interest by opting for a deposit with a rate of 2% p.a. compared to 1.5% p.a.

However, if interest rates are equal, what other factors should you consider?  These include:

  • terms offered – make sure the financial institution you choose offers the term that you’re after. Some institutions offer a wide range of terms ranging from a month upwards, whereas others just offer a small selection of options
  • bonus offers – check whether there are any bonus offers available. Some financial institutions advertise ‘specials’ on term deposits to attract new customers, which can present a good opportunity.  For example, you may see a deal from a financial institution offering an interest rate of 2% p.a. for deposits of over $5,000 for a three-month period when they otherwise may not attract as high a rate
  • fees for early withdrawal – look at what the penalties are if you request to withdraw your funds early. Sometimes there’s a set penalty fee (often between $30 and $50) for early withdrawal, and this is accompanied by a reduction in interest compared to what you would have earned if you’d left your money in place.  However, how much interest you’ll be docked does vary between institutions, so check what the penalty rates are if there’s any likelihood of you needing your funds early.  These rates can reach up to 80% to 90% of your interest earnings if you withdraw early in the term
  • withdrawal notice required – compare how much notice is required if you do wish to withdraw your funds early. This can range from 14 days for shorter term deposits up to 31 days for longer term deposits, while some are available at call, so check the small print for how much notice will be required before your funds are released

What are the benefits of term deposits over savings accounts?

Comparing savings accounts and term deposits is like comparing apples with oranges.  While a savings account is also a place to deposit your extra cash and earn interest, that’s where many of the similarities end.

With a savings account, you can take your money out and add more funds at any time you wish, which isn’t the case with term deposits.  They’re locked in place for the set period you’ve chosen (except in an emergency, which banks call ‘exceptional circumstances.’)

Term deposits also run for a set period, whereas savings accounts are open-ended and have no closing date.  At the end of your term deposit period, you’ll have to decide whether to roll your funds over into another term deposit or transfer them to another bank account.

If you’re sure you won’t need to access your savings for a length of time, a term deposit will offer you the best way to grow your nest-egg and earn the highest interest.  However, if you foresee a need to dip into your savings, either choose a short term deposit (for example, one-month terms are available) or stick to a high-interest savings account and enjoy the flexibility they offer.

Which lenders offer the best interest rates on term deposits?

In general terms, the smaller online banks, building societies and credit unions offer the best interest rates on term deposits.  These online lenders have lower overheads and so can offer the highest interest rates available in Australia. 

As of June 2022, the highest interest rate on a two-year term deposit is offered by AMP Bank, which is offering 3.6% p.a. for a minimum $5,000 deposit for 24 months.  Other top rates for different term lengths include:

  • For a deposit of 12 months, AMP is offering 2.85% p.a., while MyLife Finance (soon to be known as Challenger) and Macquarie Bank are offering 2.75% p.a. interest on deposits of $5,000 for a year.
  • For a shorter six-month term deposit, AMP is offering 2.1% p.a., Judo Bank and MyLife Finance tie with a 1.95% p.a. interest rate, followed by Macquarie Bank offering 1.90% p.a.
  • For a longer deposit of five years, AMP offers 4.1% p.a., while Judo Bank and MyLife Finance offer 4% p.a. and 3.75% p.a. respectively.

Why compare term deposits with Savvy?

Top tips to maximise your term deposit interest

Deposit as much as you can afford

The higher the sum you deposit, the more interest you’ll earn.  Larger sums also attract higher interest rates from some financial institutions on a tiered scale, so the higher your deposit, the higher the interest rate.

Choose the longest term you can manage

Longer deposit terms also attract higher interest rates, so your savings could grow more quickly if you leave them in a term deposit for the longest possible time.

Plan for when your deposit matures

Decide in advance what you’ll do when your term deposit period comes to an end.  Don’t forget about your savings or they may end up locked in a holding account for abandoned money (earning little or no interest) while your bank waits to hear from you.

Don’t change your mind

Once you’ve deposited your savings into a term deposit, leave them alone and let them mature like a good bottle of red wine.  Expensive penalties apply if you break your deposit contract to get access to your funds early.

Compare interest rates

Don’t just settle for the interest rate offered by your standard bank.  Compare interest rates with Savvy to find the institution which offers the highest interest fixed term deposit.

Keep an eye out if interest rates are on the rise

If interest rates are rising, balance the need to chase a higher interest rate for a longer-term deposit with the possibility of getting a better deal when interest rates are increased.  If you do lock your funds away for several years, you could miss out on interest rate hikes in that period.

More of your term deposit interest rate questions

Who are term deposits available for?

Term deposits are generally available for customers aged over 18, although some financial institutions allow children to have a term deposit from the age of 12 or 13.  However, these are in the minority, so if you’re after a kid’s term deposit you may have to search around.

There are also term deposits available for couples, businesses and self-managed super funds (SMSFs).  These term deposits are available for the same terms and with similar interest rates as standard term deposits, although SMSF term deposits are geared towards higher deposit sums and longer investment periods and can have slightly higher interest rates than those offered to personal savers.

Can I access my term deposit funds in an emergency?

Yes – if you experience an emergency or ‘exceptional circumstances,’ you can apply to retrieve your funds, but a withdrawal penalty fee will most likely apply and you’ll lose some of the interest you would have earned.  Some institutions require you to give a period of notice before withdrawing your funds, which can range from 14 to 31 days or more, depending on the length of your term deposit.

Is interest on term deposits compound or simple interest?

Interest on a term deposit is calculated daily on a compound interest basis.  If you choose to have your interest paid back into your term deposit, you’ll end up earning interest on your interest, which will help grow your savings more quickly.

How can I find out how much interest I’ll earn with my term deposit?

Use Savvy’s term deposit calculator to work out how much interest you will receive on your term deposit.  You can also use this calculator to compare different offers and interest payment conditions to see which one will be most beneficial to your personal circumstances.

What happens when I close a term deposit?

The end of your term deposit period is called its maturity.  You can either choose to roll your funds over into another term deposit at maturity or transfer your cash to another savings or transaction account.

Are there any incentives offered to roll funds over into another term deposit?

Yes – many financial institutions offer an additional bonus interest rate if funds in a term deposit are rolled over into a second term deposit once the initial term expires. It’s worth comparing special offers if you plan to lock up your funds for an extended period to find the best deal to grow your savings.

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