What is a Term Deposit?

Find out what a term deposit is and compare interest rates on offer in Australia with Savvy.

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, updated on September 11th, 2023       

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Compare term deposit interest rates

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 Rabobank 1 Year Term Deposit
  Maximum rate Interest rate Minimum deposit Government guarantee  
site-logos 4.75%
1 Year
4.75% $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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What is a term deposit?

Term deposits are an investment option that involves locking away your savings for a fixed period in return for a set rate of interest.  They’re also called personal term investments by some banks.  There are four elements of this type of investment that are set in stone from the beginning of the agreement.  These are:

1. the amount of money (known as the sum) you choose to invest

2. the length of time you choose to lock your money away (known as the term of the investment)

3. the interest rate you’ll receive for lending your money to a bank or financial institution for a fixed period

4. the interest compounding frequency, such as how often you’ll receive the interest earned and where it will be deposited

Savvy can help you compare reputable financial institutions and find the best high-interest term deposit interest rates in Australia, offering accurate and up-to-date comparison information to help you make the best call for your savings.

How do term deposits work?

The way term deposits work is that when you choose to open a term deposit, you specify how much you wish to invest and choose the term of the deposit, which typically ranges from one month up to five years.  Some institutions mark the terms in days (such as 180 or 360 days) while others use months or years (such as three months, 12 months or two years).

You also have a choice as to how often you’ll receive the interest earned.  It can either be paid to you monthly, quarterly, half-yearly, annually or at the maturity of the deposit (which is when the deposit period ends).  Banks and other financial institutions which offer term deposits quote different interest rates depending on all these variable factors.

For example, an institution such as Macquarie Bank may offer an interest rate of 1.90% p.a. for a deposit over $5,000 for a term of six months, with that interest rate increasing to 2.75% p.a. for one year and 3.30% p.a. for two years (rates accurate as of June 2022).

Once you’ve settled on all of these factors, your funds are locked away for the agreed period of the deposit.  During this period, you’ll be unable to access these funds, either to deposit or withdraw from them, without significant advance warning and/or a penalty fee. When this agreed period is over, you have the choice as to whether to reinvest your funds or transfer them to another savings or transaction account so you can access them.

How do I compare term deposits?

It’s worth being aware of the four variables listed above when comparing term deposits.

Deposit size:  The more you invest, the more interest you’ll earn. Each institution will impose a minimum deposit limit ranging from $1,000 to $5,000 or even as high as $10,000 for some term deposits.  Some banks also have a maximum deposit limit, but it’s often a very high limit such as $250,000 or $2 million, so these will only be of concern to those with significant savings in the bank.

Term:  In general terms, the longer you agree to stash your cash, the higher the interest rate you’ll earn.  A six-month term deposit will almost always earn more interest than a three-month term deposit, for instance.  It’s important to decide on the length of time you wish to lock your funds away for, as you can determine whether each institution offers what you need.  For instance, while most offer five-year deposits, some institutions cap the length at three years.

In general, the longer you invest, the higher the rate you’ll receive.  However, be on the lookout for special offers which may break this general rule.  For instance, in June 2022, People’s Choice Credit Union is offering an interest rate of 0.80% p.a. for a term of seven months, but only 0.30% p.a. for term deposits which are one month longer.  This is why it’s very important to compare the specific term deposit you’re after, which you can do with Savvy today.

Interest rate: This is expressed as a percentage per annum (% p.a.).  It’s a simple interest calculation which tells you how much interest you’ll earn per year on your deposit.  Of course, the rate you receive is the most important factor which determines how much interest you’ll earn.  Just a small increase in the interest rate can make the difference of hundreds or even thousands of dollars in the interest you receive if you’re investing a large sum for several years.

For instance, if you invest $10,000 for two years with interest paid at maturity:

  • at an interest rate of 1.2% p.a., you’d earn $241.44
  • at a higher interest rate of 3.4% p.a., you’d earn $691.56

Interest compounding:  This is the frequency that your interest is paid to you.  You can choose to have it paid regularly back into your term deposit account (in which case the interest you earn will compound, so you’ll earn ‘interest on your interest’).  Alternatively, you can have it paid into another bank account to form a regular income stream or receive it at the end of the term in one lump sum.

In general terms, you’ll receive a higher interest rate if you choose to receive your interest less often.  However, due to the effects of compounding, you may be better off receiving your interest more regularly at a slightly lower rate.  Use Savvy’s term deposit calculator to work out which interest option will be the best for your investment.

What are the advantages of term deposits?

Some of the key advantages of term deposits include:

  • Low maintenance: Term deposits have the advantage of being a 100% safe investment option which you can set and forget about until the end of the term, meaning they can be a low-maintenance investment option
  • Certain and secure: They offer security and certainty, meaning you’ll be able to budget to receive the fixed interest offered regardless of what happens with other interest rates.  Nothing will change once you’ve agreed to the conditions of your term deposit (unless you choose to withdraw your money early in an emergency)
  • Useful holding strategy: They can offer a useful ‘holding strategy’ if a large lump sum or inheritance is suddenly received.  It’s always a good idea to take your time before deciding what you’re going to do with your funds and a term deposit, either short or long-term, is a safe way to stash your cash and earn interest whilst you receive advice
  • Forced saving: For those people who like to spend, locking your savings away in a term deposit can be a form of forced discipline to keep your nest-egg safe
  • No fees: in almost all cases, term deposits come without any costs for maintaining your account, meaning your interest won’t be eaten away by additional charges (unless you withdraw early)

What are the main differences between term deposits and savings accounts?

Term deposits, by their nature, are limited to a fixed period.  When the term is over, you’ll have to make a decision about what to do with your cash: either roll it over into another term or transfer it to another bank account so you can access it.  You're also limited to a set investment amount and you can’t add to or withdraw from it during the life of your term deposit.

Savings accounts allow you to gradually increase your savings dollar by dollar as you earn income.  They aren’t ‘fixed’ in that regard.  They also tend to have lower interest rates but no expiry date, so you can keep a savings account open for as long as you wish.  They can allow you to access your savings with no penalties via a linked transaction account (depending on the conditions of your savings account, with some ‘locked’ savings accounts having conditions that lose you interest if you make a withdrawal in any one month).

How to get the best interest rate for your term deposit

Here’s more of your frequently asked questions about term deposits

Who can open a term deposit?

Some banks and financial institutions have a minimum age limit of 18 years to open a term deposit.  However, others allow children as young as 13 to open a term deposit account, so check with your financial institution if you’re looking at a term deposit for a child.

Can I access my term deposit cash in an emergency?

Yes – all banks and financial institutions have provisions for what they call ‘exceptional circumstances,’ or emergencies that can happen.  If you do have a crisis arise, contact your bank and explain that you’re suffering from exceptional circumstances and they’ll make a decision on a case-by-case basis whether to allow you to access your cash early and what penalties will apply (if any).

Can my SMSF open a term deposit?

Yes – there are term deposits designed for self-managed super funds (SMSFs) and these tend to be offered under the umbrella of business products, with terms that are also suitable for not-for-profit organisations and corporations as well as companies. They tend to have a higher minimum deposit requirement, often $10,000 or above, and can be capped at $2 million or higher. In other aspects, they’re the same as personal term deposits.

Do I have to pay tax on the interest I earn from my term deposit?

Yes – the interest earned on a term deposit must be declared as normal income on investments for most Australians.  Some SMSFs may have income tax exemptions, so check with your financial advisor if this applies to your fund.

Are there any ten-year term deposits on offer?

Not really – retail term deposits tend to be from a minimum of one month to a maximum of five years.  However, some specialist financial institutions offer investment options that do span up to ten years, but these tend to be long-term investment products geared towards SMSFs.  Term deposits for ordinary Aussies tend to be more short-term investments and are capped at five years.

Is my term deposit completely safe?

Yes – term deposits are a safe investment option in part because authorised deposit-taking institutions (ADIs) are protected by the Australian Government’s Financial Claims Scheme, which guarantees deposits up to $250,000 per person per ADI.  This means that even in the highly unlikely event your bank or credit union collapses, your deposit will be covered up to that figure.

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