It’s great to have a bank account where you can keep your money, but sometimes you want to get a bit more in return.

Term deposits let you store your savings with your chosen bank and lock in a steady interest rate to grow your wealth over time.

What is a term deposit?

Term deposits work much like savings accounts or investments, but with a few key differences. 

When you open a term deposit, you will put money in the bank to earn interest over time. However, a term deposit’s interest rate and term length are fixed. This means you can calculate in advance how much interest you can earn on your savings, regardless of changes in the market. 

Once you’ve deposited the money with the bank, you won’t be able to easily access these funds until the end of the agreed-upon term. At the end of your term, you can withdraw your money, or choose to roll your deposit over for another term. 

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2.00%

p.a for 5 months

$5,000

ANZ

1.70%

p.a for 6 months

2.00%

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1.80%

p.a for 60 months

$5,000

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1.10%

p.a for 6 months

1.15%

p.a for 12 months

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Maturity Alert By Email
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1.43

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2.10%

p.a for 5 months

$1,000

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2.05%

p.a for 6 months

2.10%

p.a for 5 months

Automatic Maturity Rollover
Early Withdrawal Available
Is Covered By Government Gurantee
Joint Application Available
Maturity Alert By Email
Maturity Alert By Phone

2.51

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Learn more about term deposits

Who offers term deposits?

Most financial institutions can offer you a term deposit, including big banks, mutual banks, credit unions and online banks. If you’re already a customer, it might be especially easy to set up a term deposit with your bank, as they should already have most of your details. 

However, it’s important to keep in mind that your current bank or credit union might not offer the best term deposit for your situation. For example, a term deposit from another bank may offer a higher interest rate, or more convenient access to your money. Comparing term deposits can help you make the best choice to suit your financial goals.

What features should I look for in a term deposit?

The first feature of a term deposit to consider is the fixed interest rate. Because this rate will determine how much interest you’ll earn on your deposit over the term, it’s important to be confident that you are getting the best rate possible for your situation. 

You’ll also want to consider the term, which is the length of time that your funds will be locked away. Term deposits are usually broken up into two categories: short-term and long-term deposits. Short-term deposits can be as short as one month, while long-term deposits can last years. Longer terms often offer higher interest rates than shorter terms, but it’s best to check with your financial institution.

You may want to look at how frequently you’ll be paid interest on your term deposit. Some term deposits pay interest annually, semi-annually, quarterly, monthly, or at maturity (the end of the term). You may have the option to have this interest paid into a bank account of your choice, to supplement your household income and support your budget. You may also be able to add the interest onto your deposit, where it can earn compound interest. Keep in mind that term deposits offering more frequent interest payments may also have lower interest rates - it’s important to compare your options and calculate how much interest you could earn.  

It’s also worth thinking about rollover terms before committing to a term deposit. These are the options available to you at the end of your term, when you’re able to reclaim your deposit and interest earnings. Some term deposits will allow you to immediately reinvest your savings and earn even more interest. If you do decide to reinvest right away, it’s important that you reconsider the interest rate to make sure it’s still the best rate available for your situation.

Do term deposits charge fees?

You won’t typically find annual or monthly fees attached to your term deposit. In fact, many term deposits don’t charge any fees.

However, you should be aware of penalty fees. A penalty fee usually applies if you decide to access your money before the end of your term. These fees will vary by lender, so it’s best to check the penalty fee amount before agreeing to a term deposit. 

Can I withdraw money from a term deposit?

When you apply for a term deposit, it’s often assumed that you’ll be keeping your money in the bank for the full duration of the agreed term. Some banks will allow you to withdraw part or all of the money from your term deposit early, but penalties may apply. 

To withdraw part or all of the money from your term deposit, you’ll often need to give advance notice, often 31 days. You may need to pay a penalty fee for early withdrawal. You may also see the interest rate on your term deposit reduced if you make early withdrawals, affecting the interest you’ll earn.  

Term deposit pros and cons

  • Relatively low risk
  • Can help you manage your spending and save
  • Low maintenance
  • Harder to access your money
  • Won't benefit if variable rates rise

What are the benefits of term deposits?

One of the biggest potential benefits of a term deposit is the relatively low risk compared to some other investment options. Term deposits require you to agree on a rate before your money is locked away, which means you’ll know exactly what you should be earning. Even if variable interest rates fall, you’ll still earn your fixed rate, so there’s very little risk of losing any of your investment. Plus, the Australian government has guaranteed deposits up to $250,000 in Authorised Deposit-taking Institutions (ADIs) such as your bank, building society or credit union. This means that if the worst happened and your bank went out of business, your deposit should still be protected. 

Term deposits can help you manage your spending. After you deposit your money into your chosen account, you can no longer access it without paying a fee. This security can be great if you’re saving for something expensive, like a house or car. Because your money is practically unavailable to you for a fixed length of time, it’s much harder for you to spend this money elsewhere on everyday purchases.

Another potential benefit to term deposits is that they don’t take much effort to maintain. Because of your fixed rate, your investment should earn interest and make money with barely any effort at all. The fact that term deposits don’t need much maintenance means they often appeal to people who tend to be more hands-off with their personal finances.

What are the drawbacks of term deposits?

One potential drawback of a term deposit is that you can’t access your money during the term without being charged a penalty fee. For some this can be a positive, but for others it can make term deposits seem restrictive. If you’re looking for a lot of flexibility and control over your finances, you might want to consider a savings account rather than a term deposit.

Another potential downside is that your interest rate won’t rise with the market. If variable interest rates rise, your term deposit won’t adopt a higher rate, because the same rate has been locked in for the entire length of your term.

When should I consider opening a term deposit account?

If you’re looking for a relatively low-risk way to invest your money, a term deposit may offer a steady interest rate, which can help you make money without having to take major risks.

A term deposit can also be useful if you’re trying to save for a large purchase, like a home. By putting your money in a term deposit, it can’t be easily spent on day-to-day purchases. You can also choose a term that fits your saving goal - for example, you might lock your money away for a year or more to spend on a big purchase, or to keep as an emergency fund.

How do I apply for a term deposit?

Applying for a term deposit can be a lot like opening a bank account. However, when you apply for a term deposit, there are few decisions you’ll need to make:

  • How much money would you like to invest?
  • How much interest would you like to receive on your deposit?
  • How long a term would you like?

After you’ve made your choices regarding your term deposit, you’ll need to fill out a form to apply. Some financial institutions will allow you to enter your information online, while others will require that you visit a branch. Much like opening a bank account, you may need to provide details of your identity and residence when you apply for a term deposit.

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Frequently asked questions

Are term deposits compounded?

Term deposits can be compounded, depending on what you choose to do with the interest.

There are two ways to receive interest from a term deposit: either a lump sum at maturity; or paid on a regular basis, usually monthly. If you get your interest paid regularly, you can get it paid into a transaction account, or back into the term deposit account. By using this second option, you’re getting interest paid on your interest. In other words, it’s compounding.

Having the money paid into a transaction account means you can access it for your day-to-day spending, while compounding the interest means you get a better overall return on your investment. Both have advantages, depending on your needs, but be aware that some term deposit accounts that pay interest regularly may offer a lower interest rate to offset the effect of compounding.

What is a short term deposit?

Sometimes you only want to tie up your money for a short period, maybe because you want to make a quick return on a large sum, or just to have more flexibility and access to your money. That’s where a short term deposit can come in.

Short term deposits are usually less than 12 months (e.g. 30 days, 90 days, six months or 12 months), though you will still not be able to access your money for the length of the term without incurring a penalty fee.

At the end of the term, you can roll your deposit over, or you can withdraw it. An advantage of short term deposits is that you can take advantage of higher interest rates with a different financial institution, if they are available.

Are term deposits worth it?

Ultimately, whether term deposits will work for you will depend on your particular financial needs.

Term deposits can be a great way to get your money working for you. By locking it away and forgetting about it for a period of time, it can earn interest for you. If you have the interest paid on a regular basis, rather than at maturity, you can either have some extra spending money or you can reinvest it into the term deposit to compound.

Of course, locking your money in a term deposit means you cannot access it for the length of the term, without paying a penalty for early withdrawal. This can remove the temptation to spend the money, while it also earns interest.

Is a term deposit an asset?

The short answer is yes – a term deposit is, indeed, an asset.

Regardless that the funds are locked away for a fixed period, when it comes to the balance sheet, it’s considered an asset.

Aside from being an asset, term deposits are also cash investments which are held at financial institutions like banks or credit unions.

Term deposits work by investing a set amount of cash in a bank account for a fixed period at a fixed interest rate.

When you deposit your money in a term deposit, you’re agreeing to lock it away for a predetermined period, ranging from short-term periods of one month all the way to long-term periods of up to 10 years.

Term deposits are a popular way to boost your bottom line by investing your money and increasing the value of your asset.

What is a fixed term deposit?

A fixed term deposit is a safe and stable way to earn a fixed return on your cash investment.

Fixed term deposits are essentially bank accounts where you lock your money away for a fixed period and earn a fixed interest rate on those funds.

Fixed term deposits can be both short term, which is usually anything under 12 months, or long term, which can be up to 10 years.

Once the fixed term has ended, the bank or financial institution will give you back your initial deposit plus any interest you earn during the fixed term period.

Depending on the type of fixed term deposit account you open, when the term matures, you may have the option of rolling the funds over for a new term or withdrawing the funds.

Unlike other savings or transaction accounts which offer variable interest rates and flexible features, fixed term deposits offer fixed interest rates, which means the amount of interest you earn will remain the same during the term of the deposit.

Can students make term deposits?

If you are a student who has managed to save some money and are looking for a safe investment option, you may be considering a term deposit. Most term deposits (and other bank accounts) are open to anyone who is at least 18 years old.

There are also some term deposits open to younger students, some even without an age limit. These term deposits are usually opened on the student’s behalf, by their parent or guardian.

A term deposit is generally a safe investment option, especially if you want to make sure you can’t touch your savings for a set period of time. If you are 18 or older, shop around for a competitive interest rate before committing. If you are under 18, speak to your parent or guardian to get started.

What is the best term deposit rate in Australia?

If you’re ready to add a term deposit to your financial strategy, there’s likely one question on your mind: what is the best term deposit rate in Australia?

Unfortunately, there’s no one right answer to this question.

That’s because if you want to find the best term deposit rate in Australia, you first need to understand the nature of interest rates themselves. The financial market is always moving, with interest rates moving up and down and special offers being introduced and withdrawn.

As a result, whatever the best term deposit rate in Australia is today might not be tomorrow.

So to find the best term deposit rate in Australia, it’s best to ignore the past and to instead focus on today’s market. Compare term deposits to find out the current rates and find the right term deposit for you.

How safe is a term deposit?

You may have heard that a term deposit is a type of investment, different to a traditional savings account. All investment comes with inherent risk, so it’s important to know how safe a term deposit is before committing.

Term deposits offer a fixed interest rate which is guaranteed, so you do not have to worry about rising or falling interest rates when investing. You can add up how much interest you will earn over your fixed term, and this will be paid into your account per the conditions of your term deposit.

Term deposits with authorised deposit-taking institutions are also guaranteed for up to $250,000 by the Financial Claims Scheme, so you don’t have to worry about the bank collapsing either.

The only inherent risk of a term deposit is if you may need to break it early. If this happens, you will need to pay a breakage fee and possibly sacrifice some of your interest as a penalty. But if you know you can invest a certain amount of money for a fixed period of time, you can rest assured that a term deposit is a safe investment option.

What is a term deposit account in a bank?

A term deposit account in a bank is a type of investment where you lock away a portion of your savings for a fixed period in return for earning a set amount of interest.

Opening a term deposit account in a bank is a safe way to earn a stable return on your investment of cash.

Term deposit accounts can be a good way to give your savings an extra boost without the need to actively watch or manage your funds during the term of the deposit.

Term deposit accounts in a bank are a popular type of investment because they’re safe and there’s very little risk that you could lose your money.

If you make a term deposit of up to $250,000 with an authorised deposit-taking institution, it’s guaranteed by the Australian government, which means there’s virtually no risk of losing your money and you’re guaranteed return.

Interest rates vary depending on the length of the term, the amount you deposit and the bank you choose.

How do you break a term deposit?

If you have found yourself in sudden need of funds, you may be wondering how to break your term deposit and access your savings.

If you need to break your term deposit, your first step should be to check the terms and conditions with your bank or provider. Many banks now require 31 days’ notice before you can access the funds in your term deposit, so in many cases you should first notify your bank that you will be breaking the term.

Once you have notified the bank and know when you will have access to your funds, you will then be liable to pay a breakage fee. Check with your provider to see how much this fee will be. You may also need to sacrifice a percentage of your interest as a penalty for breaking the term early.

Once you know when you will have access to your funds, and how much you will need to pay to do so, you are in a good position to decide whether you want to break your term deposit.

How do I pay tax on term deposits?

Just like your regular income, the interest you earn on term deposits is taxable. You might be wondering, “How do I pay tax on term deposits?” The tax you pay on your interest will depend on the length of your term and when your interest is paid.

You should pay tax on any interest that you have received within the current financial year. For example, if you receive monthly interest payments, these payments should be claimed on your tax return. However, if your term deposit is longer than one year and you will only receive interest at maturity, then you will pay tax on your interest in the year that you receive it.

Paying tax on your interest is much like paying tax on your income. The money you have made in interest should be claimed on your tax return along with any other income in that year.

How do you calculate term deposit interest?

If you’re ready to open a term deposit, there’s a lot you’ve already figured out. You’ve decided on the length of your term and found the best interest rate, but there’s something you still might be wondering. How do you calculate term deposit interest?

One of the easiest ways to calculate term deposit interest is by using a term deposits calculator. However, you can also estimate your total earnings on your own.

A fixed interest rate signifies what percentage of your original balance your term deposit will earn annually. For example, a deposit of $1,000 at an interest rate of 3 per cent will earn three per cent of $1,000 annually – meaning you’ll earn $30 of interest each year.

You can estimate your interest using three variables. Multiply together your deposit amount, interest rate, and term length and you’ll approximate the interest a deposit will earn. For example, if you invest in a term deposit for $5,000 at an interest rate of 3 per cent for two years, your interest would total $300.

Is term deposit interest taxable?

The interest that you earn from your term deposit is considered taxable income. Because your term deposit interest is taxable, it should be disclosed on your annual tax return.

It’s important to note that circumstances may differ depending on whether you provided the account holder with your tax file number (TFN). If you did not supply your bank or other financial institution with your TFN, they are typically required to withhold tax from your interest earnings.

If you’ve invested in a deposit that lasts longer than 12 months, you’ll need to claim your earned interest in the year that you received it. For example, if you receive interest monthly, you’ll need to claim your earnings at the end of the financial year. However, if you only receive interest at maturity, you should claim your earnings in the year that you received the lump sum of interest.

What is a term deposit?

A term deposit is an investment savings account. A term deposit usually pays a higher rate of interest than a regular savings account, with the interest rate fixed for the term (or duration) of the deposit.

You can open a term deposit account for one month or up to five years depending on your investment goal, and invest as little as $500 to start earning a profit.

With a term deposit, you get to decide how much you want to invest (the principal or deposit), for how long (the term or duration) and the frequency of interest payments.

A term deposit represents a secure form of investment, unlike trading in shares or purchasing real estate. And a term deposit up to $250,000 is protected by the government guarantee.

Term Deposits Frequently Asked Questions

What is a term deposit rate?

The term deposit rate is the agreed interest rate for your term deposit. It remains fixed for the term of the deposit.

For example, if you deposit $5,000 for 12 months at a 2.5 per cent term deposit rate, that 2.5 per cent term deposit rate will be fixed for the entire 12 months and won’t change until the term matures.

The term deposit rate is one of the most important factors to consider when comparing your term deposit options. The general rule of thumb is that the longer the term, the higher the term deposit rate.

Term deposits are a popular type of investment because they’re safe and provide reliable returns.

The return you get on your term deposit will be determined by the amount you initially invest, the amount of time you choose to invest it for, and the term deposit rate.

What is a secured term deposit loan?

A secured term deposit loan is a personal loan that’s secured by a term deposit. To take out a personal loan that’s secured by a term deposit you would need to go through the same bank.

Generally, secured term deposit loans offer a lower rate of interest than standard personal loans. This is because the interest generated by your term deposit offsets the interest applied to the loan.

A secured term deposit or term deposit secured loan enables you to leave your money invested in a term deposit while still being able to make significant cash purchases.

This type of personal loan usually offers many of the same features of a standard loan, including: redraw facility, variable and fixed interest rate options, and the ability to make extra repayments.

Can an international student have a term deposit?

If you’re looking for a steady way to grow your funds as an international student, you might be considering the possibility of a term deposit. Banking for overseas students can be complicated, so you might be wondering, “Can an international student have a term deposit?”

So, can an international student open a term deposit? The answer is yes.

Several banks around Australia offer term deposits to international students. Some banks even have specific accounts and offers designed for those who study overseas.

In general, large banks will offer several options for international students. If you have already opened an account with a bank, it might be best to start by discussing your options with your chosen bank.

How often do term deposit rates change?

One of the advantages of a term deposit is that this type of investment enjoys a fixed interest rate. This means that the interest rate that you have signed up for will not change during the period of your term deposit, regardless of rising or falling market interest rates.

However, it is important to be aware of the end of your term deposit. Once your term ends, whether this is in three months or three years, many banks will default to rolling over your deposit into a new term, sometimes with a lower interest rate. Once your term deposit rolls over, you will then be locked into this new fixed interest rate for another term.

Make sure to use the grace period at the end of your term to your advantage. Shop around for a competitive interest rate and reinvest your money accordingly.

Are term deposit accounts subject to capital gains tax?

The tax you pay on a profit generated by a term deposit is not classified as capital gains tax (CGT). CGT applies to an asset (or investment), such as real estate or shares, where you either make a capital gain or a capital loss.

Interest earned on a term deposit is considered income though, and would need to be included in your annual income tax return.

The interest can be declared in the year the investment matures, or for the financial year it was credited to your account.

This also applies if you roll over your investment into a new term; you are still required to declare the interest earned at the rollover date (whatever financial year that falls in).