Term deposit rates

While many Australian mortgage holders may be nervous about the predictions that there could be multiple hikes to the national cash rate this year, it could be a different story for savers. As the cash rate approaches a potential peak of 4.10 per cent, as predicted by some big bank economists, banks and Authorised Deposit-taking Institutions (ADIs) may pass these hikes on to customers in the form of higher interest rates for savings accounts and term deposits.  

Careful use of a term deposit could help some Australians lock away their savings and enjoy steady returns. This could in turn help some Australians reach their financial goals and potentially even help relieve some financial stress, which has been linked to sleepless nights.  

Some of the highest term deposit rates on RateCity at the time of writing include:

• 4.95% p.a. for 60 months – Judo Bank Personal Term Deposit (At Maturity)
• 4.60% p.a. for 48 months – Rabobank Australia Term Deposit
• 4.50% p.a. for 36 months – G&C Mutual Bank Term Deposit
• 4.40% p.a. for 24 months – MOVE Bank Term Deposit
• 4.35% p.a. for 12 months – Gateway Bank Term Deposit

Updated by Mark Bristow on 1 March 2023

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 a fixed term. 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.

Here are some of the main features to look for in a term deposit:

• Term deposit interest rates

The first feature to consider is the fixed interest rate, as this will determine how much interest you’ll earn on your deposit over the fixed term. As a general rule of thumb, you may find that high interest rates mean higher rate of return. It’s important to be confident that you are getting the best rate possible for your situation. 

• Fixed term

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.

• Interest payment frequency

You may want to look at how frequently you’ll be paid interest. Term deposit providers may pay interest on the following terms:

• Annually
• Semi-annually
• Quarterly
• Monthly
• At maturity (the end of the term)

• Minimum deposit

Term deposit providers may have minimum deposit requirements before they'll allow you to open a term deposit account with them. Providers also typically offer tiered interest rates for different minimum deposit sizes. For example, a minimum investment of $5,000 may come with a lower interest rate than a minimum investment of $250,000.

• Rollover terms

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 providers will require a certain number of days' notice if you're planning on withdrawing your funds and closing your term deposit account.

Some term deposits will allow you to immediately reinvest your savings into a new term deposit and earn even more interest. If you do decide to reinvest right away, it’s important that you reconsider what the current interest rate is as it may have changed since you first opened your account.

You may have the option to have this interest paid into a bank account of your choice, to supplement your household income, or even put towards your home loan or outstanding credit card debt.  

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.

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. 

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. As your money is practically unavailable to you for a fixed period of time, it’s much harder for you to spend this money elsewhere on everyday purchases.

Term deposits also don’t take a lot of work to maintain. Thanks to your fixed rate, your investment should earn interest and make money with barely any effort at all. This means they often appeal to people who tend to be more hands-off with their personal finances.

In terms of security, your deposit should be kept safe thanks to the government guarantee. This means that a licensed term deposit provider will have been approved by the Australian Prudential Regulation Authority (APRA) as an Authorised Deposit-Taking Institutions (ADI). This means that any deposit products will be protected under the Australian Government’s Financial Claims Scheme, which states that deposits up to $250,000, for each account holder at any ADI, are protected in the worst-case scenario the provider were to go under.

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 term deposit 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.

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 financial situation. For example, another bank may offer a more competitive interest rate or more convenient access to your money. Comparing term deposits can help you make the best choice to suit your financial goals.

Applying for a term deposit can be a lot like opening a transaction account. Once you've compared a range of term deposit options through comparison tools, such as term deposit tables and term deposit calculators, you can begin the application process.

After you’ve made your choices regarding your term deposit, you’ll need to fill out a form to apply. You'll typically need the following:

• Proof of age (18 and over)
• To be an Australian resident or 457 visa holder
• Personal identification, such as a passport or drivers license.
• Employment and income information