Term Deposit Advantages

A term deposit offers plenty of advantages to savers. Compare term deposits and find out more with Savvy.

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, updated on September 11th, 2023       

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Compare term deposits

Have you ever wondered what the advantages are of term deposits compared to other methods of saving and investing?  Before you dive into opening your term deposit, it’s important to understand its ins and outs.  Find out more about the benefits of term deposits and compare the different types of deposits available in Australia today with Savvy so you can pick the best one for your savings.

site-logos Rabobank 1 Year Term Deposit
  Maximum rate Interest rate Minimum deposit Government guarantee  
site-logos 5.00%
1 Year
5.00% $1,000 First $250,000
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Start with as little as $1,000 and get your interest paid monthly, quarterly, half-yearly or yearly. Receive a 0.10% loyalty bonus when you automatically reinvest your Term Deposit before maturity

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site-logos Citi Term Deposit
  Maximum rate Interest rate Minimum deposit Government guarantee  
site-logos 5.05%
1 Year
1.25% $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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The advantages of term deposits

What are the advantages of term deposits?

The main advantages of term deposits are:

  • High fixed interest rate

Term deposits offer a high fixed interest rate, so your earnings are guaranteed and you can calculate them in advance to know what interest you’ll receive provided you leave your funds untouched

  • No fees or charges

Banks and financial institutions don’t charge fees on term deposits, so your savings don’t have to be whittled away by unnecessary bank charges in the same way they could be on other products like savings accounts (although these are also rare)

  • Low maintenance

Once you take out a term deposit you can sit back and relax, knowing your funds are in a safe place and earning interest for you.  There’s no further action required until the end of the deposit period, so you can set and forget your savings until you receive a reminder from your bank towards the end of the term.

  • Protection for your savings

Because your savings are stashed away out of reach, there’s no temptation to spend them (which can be a bonus if you’re not very disciplined or tend to be tempted by sales)

  • Government guarantee up to $250,000

Term deposits are backed by the Australian Government’s Financial Claims Scheme up to a maximum of $250,000 per person per ADI (authorised deposit-taking institution).  This is the government’s safety net for savings, so in the highly unlikely event that an Australian bank or financial institution should fold, your savings are safe

Term deposits generally offer a higher interest rate than most savings accounts, although there are exceptions to this rule, which is why it’s so important to compare term deposits with Savvy before making a financial decision.

What are the disadvantages of term deposits?

However, it’s also important to consider some of the drawbacks which may come with a term deposit when you’re comparing your options. These include:

  • No access to your cash

Locking away your cash and not being able to access or add to your funds isn’t ideal, with no access to a debit card or any other way of obtaining your funds.  However, all financial institutions have provisions for what they call ‘exceptional circumstances,’ under which you can apply to be given access to your cash in an emergency.

  • High penalty rates if you break your term

If you do have to access your savings whilst in the middle of a term deposit, you’ll need to be prepared to pay an early exit penalty, which could add up to as much as 90% of the interest you would’ve earned.

  • Miss out on rate rises

Locking away your cash for too long in an environment of rising interest rates could see you disadvantaged if interest rates suddenly increase and you’re stuck with a lower fixed rate, which isn’t the case with savings accounts.

  • Long notice periods

Some institutions require you to give a month’s notice if you wish to withdraw your funds at the end of a term deposit, rather than rolling them over into another similar deposit.  This could prevent you from taking advantage of special offers or opportunities which require instant access to cash.

How should I compare term deposits?

There are six basic features of term deposits you should compare when you’re looking to decide which term deposit is the best one for your funds, which include:

1. Interest rate offered: Obviously, the higher the interest rate you can secure, the more interest you’ll earn.  Look at online banks, credit unions and building societies for some of the best high-interest term deposits currently available.

2. Interest payment frequency: You may be offered a slightly higher interest rate to have your interest paid annually or at the end of your deposit period.  However, it’s often better to have the interest paid more frequently back into your term deposit account, as the effect of compounding itself could earn you slightly more interest than a marginally higher rate.

3. Terms offered: Most financial institutions offer a wide range of terms from a minimum of one month up to five years.  Choose the longest length of time that you believe you can lock away your savings if you wish to get the best long-term interest rate.  However, not all banks and financial institutions offer the full range of terms, which is why it’s important to compare until you find one which can accommodate your needs.

4. Minimum deposit size: These can range from a minimum deposit of $1,000 right up to $10,000 (or $25,000 for certain business deposits), so when comparing your options make sure the minimum amount is within range of what you can afford.

5. Notice period for withdrawal:  Some institutions require you to give them a period of notice before withdrawing your funds.  This can range from 14 days up to 31 days, so it’s worth looking into this aspect of term deposits before committing yourself.

More of your questions about the advantages of a term deposit

How can I work out how much interest I’ll earn on my term deposit?

You can use Savvy’s term deposit calculator to help you work out exactly how much interest your savings will earn over a set period. Just enter in the amount you wish to deposit, the term of the deposit and the interest rate offered, and the calculator will show you how much interest your savings will earn.

How do term deposits compare to high-interest savings accounts?

It’s well worth comparing savings accounts and term deposits because interest rates fluctuate frequently.  In general terms, the interest you’ll earn on a term deposit will be higher than in a savings account – however, there are exceptions to this rule, such as the Bank of Queensland’s Future Saver Account (which would earn more interest in 12 months than their term deposit over the same period as of June 2022). However, the major advantage of savings accounts is the ongoing access to your funds that they provide and the ability to add to them regularly. 

Is term deposit interest tax-free?

No – any interest you earn on your investments must be declared as part of your regular income tax declaration at tax time.  Most financial institutions will provide you with an income statement at the end of June which will detail the total income earned for that financial year.  This statement is usually provided online free of charge.

Can SMSFs take out a term deposit?

Yes – however, different financial institutions have different rules regarding self-managed super funds (SMSFs).  Some have high minimum deposit limits and caps on how many trustees a SMSF can have, which is why it’s important to compare SMSF term deposits with Savvy to find an institution which has all the terms and features you’re looking for to manage your funds.

What is the minimum age required to open a term deposit?

Some banks and financial institutions cater to children and allow term deposits for kids, whilst others have a minimum age limit of 13 or even 18 years of age.  Compare different banks to find out what the minimum age limits are if you’re wanting to open a term deposit for a child.

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