Can you break a term deposit?

It’s usually possible to withdraw your money from a term deposit early if you need the cash back in your pocket. But doing so may require providing advance notice to the bank, and you may miss out on earning interest on your savings.

Can you break a term deposit? 

Term deposits work by agreeing to deposit a sum of money with a bank or another Authorised Deposit-taking Institution (ADI) for a predetermined length of time. You won’t be able to easily access the money you’ve deposited for the duration of the term. This means you can’t easily withdraw money or “top up” your deposit with extra savings.

Once you reach the end of the term, you may have the option to automatically “roll over” your deposit for another term, or to withdraw or transfer the money to another account (including another term deposit).

If you have found yourself in sudden need of funds, but your best nest egg is locked away in a term deposit, you may be able to break your term deposit and access your savings. 

However, you may have to pay a penalty for doing so, in the form of costly break fees or interest rate reductions - and payment will likely not be instant. It is crucial that you get your head around the potential costs of ending a fixed term early before you proceed.

How do you break a term deposit?

In most cases you should simply notify your bank that you will be breaking the term. Many banks and term deposit providers now require 31 days’ notice before you can access the funds in your term deposit. If you need the funds urgently, this is worth keeping in mind as you may need to find an alternative option.

Additionally, taking your money out of your term deposit means it will no longer be able to earn you interest. Making a withdrawal could mean forfeiting some or all of the interest you otherwise might have earned on the sum. Plus, you may need to pay a fee for withdrawing your money from a term deposit early, though some ADIs let you make early withdrawals without penalty.

Breaking down term deposit break costs

If you need to break your term deposit, your first step should be to check the terms and conditions with your bank or provider. This should outline what the provider’s process is, and what kind of penalties you could be facing.

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. 

Break fees

Once you have notified the bank and know when you will have access to your funds, you may then be liable to pay a breakage fee. Check with your provider to see how much this fee will be. For example, with a CommBank term deposit, a $30 prepayment administration fee is applied if you end the fixed term early.

Reduced interest

You may also need to sacrifice a percentage of your interest as a penalty for breaking the term early. For example, with a CommBank term deposit, the following prepayment adjustments could be applied, depending on the percentage of the original term that has passed: 

Source: CBA Term Deposit General Information and T&Cs

Put simply, you decide to break your term deposit 70% of the way into the fixed term. As per the table above, the prepayment adjustment to be applied to your interest rate will be 40%. If the agreed interest rate was, say, 3%, the interest you would then earn on the amount you withdraw would be 60% of that 3% interest rate.

Need flexibility? Consider a savings account

If being able to access the funds in your nest egg when needed without penalty is a priority to you, it may be worth considering a savings account as an alternative. Savings accounts are typically more flexible and may allow you to dip into your savings when needed.

Keep in mind that some conditional savings accounts may penalise customers that make withdrawals by not allowing them to earn the highest interest rate offered. That being said, if you needed those funds in a pinch, you would not need to wait 31 days as withdrawal would be instant. You may just not earn the maximum interest rate that month as part of the account conditions.

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