Term deposit rates

Are you on the hunt for a secure way to stash your cash, other than a typical savings account? Well, look no further than a term deposit.

For those seeking a reliable way of investing their money, a term deposit can offer the opportunity to deposit funds with their chosen bank while securing a fixed interest rate. This arrangement allows you to enjoy consistent returns from your wealth over a predetermined period. Depending on your specific financial objectives, a term deposit can serve as an effective tool to help you achieve your savings goals.

Data from the Australian Prudential Regulation Authority (APRA) shows that the total amount saved in the bank from Australian households is now at $1.52 trillion as of September 2024. This includes money in term deposits, transaction accounts, mortgage offset accounts and savings accounts with authorised deposit-taking institutions (ADIs).

Economists from Australia’s big banks are forecasting that the Reserve Bank of Australia (RBA) will likely cut the cash rate in February 2025, signalling the start of an easing cycle. In anticipation of this cut, many of Australia’s banks have been slashing interest rates on deposit products, including term deposits and savings accounts.

To get the most out of a term deposit as part of your household’s budget and financial strategy, it may be worth comparing term deposits from a variety of different ADIs to get a better idea of which option may best suit your needs.  

Some of the highest term deposit interest rates on RateCity at the time of writing (assumes $10,000 deposit) include:

• 60 months: Judo Bank SMSF Term Deposit (At Maturity) – 4.50%
• 48 months: Rabobank Term Deposit – 4.30%
• 36 months: Community first Bank Term Deposit – 4.55%
• 24 months: Qudos Bank Term Deposit – 4.70%
• 12 months: The Mac Term Deposit – 5.00%

Updated by Mark Bristow on 1 November 2024

A term deposit, also known as a fixed-term deposit or time deposit, is a financial product offered by banks and other financial institutions. It is a type of savings account with a fixed interest rate and a predetermined maturity date. 

Here's how a term deposit generally works:

1. Deposit Period: You deposit a specific amount of money into the account for a fixed period, known as the term. Terms can vary, typically ranging from a few months to several years.
2. Fixed Interest Rate: The interest rate is agreed upon at the time of opening the term deposit and remains fixed throughout the term. This means that you'll know exactly how much interest you'll earn over the deposit period.
3. Maturity Date: At the end of the term, the deposit matures. You can then choose to withdraw the principal and interest or roll it over into a new term deposit. 

By opening a term deposit, you can securely deposit a sum of money in a bank and earn a predictable amount of interest over a set period, known as the term or maturity. This method of banking allows you to determine in advance the exact interest you will earn, regardless of market fluctuations. 

Once you have made the deposit, you won’t be able to easily access your funds before the agreed-upon term ends. However, at the conclusion of the term, you have the option to withdraw the funds or renew the deposit for another term. 

Many term deposit providers require an advance notice of about a month before you can access the deposited funds. Additionally, some banks and term deposit providers may impose financial penalties if you opt to withdraw funds from the term deposit before the full term completes. These penalties could take the form of a breakage fee or a forfeiture of a portion or all of the interest you might have earned on the deposited amount. 

A term deposit serves as a relatively low-risk investment option, generally suitable for those who don't need immediate access to their funds. Term deposits are often popular among individuals and businesses aiming for a safe and secure investment that offers fixed payouts over a set period. These long-term savings accounts offer guaranteed interest earnings, which can make them a good match for cautious investors who want to keep things steady and protect their cash.

Term deposits offer several benefits that may be attractive to savers and investors, particularly those seeking a fixed payout over a set period:

Low risk 

Term deposits are relatively low-risk compared to some other investment options. When you lock your money into a term deposit, you agree on an interest rate upfront, so you'll have a clear picture of your expected returns. Even if variable interest rates take a dip, you'll still pocket interest at your agreed-upon fixed rate. This can make term deposits provide a reassuring safety net, minimising the chances of any investment loss. 

Control your spending 

Once your funds are safely nestled in a term deposit account, accessing them becomes a bit of a challenge, often incurring fees. Your money essentially takes a vacation from your regular spending, tucked away for a predetermined period. This added layer of separation makes it more difficult for you to impulsively splurge on everyday expenses. Term deposits can help promote a disciplined approach to managing your finances, helping you stay focused on your savings goals without succumbing to the temptation of frivolous spending.

Low maintenance 

Term deposits 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. 

Furthermore, setting up a term deposit is generally fee-free. Unless you decide to withdraw your money early, which may attract a penalty fee, you usually don’t need to pay anything to open or maintain a deposit account. 

Secure

Unlike some other investment options, term deposits benefit from protection through the Australian Government’s Financial Claims Scheme, also known as the government guarantee. This safeguard ensures that your term deposits with Authorised Deposit-taking Institutions (ADIs) are guaranteed up to the value of $250,000 per account holder per ADI, providing a safety net in the rare event that the provider were to go under. 

In comparison, other investment options, such as shares and ETFs are not backed by the government guarantee. Despite potentially lower returns on a term deposit, the assurance of protection for your savings up to $250,000 adds a layer of security. 

Predictable returns 

Term deposits offer investors predictability in terms of returns. When you open a term deposit, you agree on an interest rate upfront and know exactly how much you’ll receive in your account at the end of the term. This predictability may be advantageous for investors looking for guaranteed returns on their savings. 

While term deposits offer several benefits, they also have some drawbacks that should be considered before investing:

Limited liquidity

Term deposits are known for their fixed terms, ranging from a few months to a few years. Once you invest your money in a term deposit, it becomes almost inaccessible until the maturity date. If you need immediate access to your funds, you may face penalties or fees for early withdrawal.

Lower returns compared to other investments

While term deposits are considered relatively safe investments, they usually offer lower interest rates compared to riskier investment options such as stocks or bonds. As a result, the potential for significant returns on your investment may be limited.

Simple interest

Most term deposits earn simple interest rather than compound interest, meaning you only earn interest on the initial deposit. This means you may not be able to grow your wealth as quickly as with a savings account for example, which typically offers compound interest. Though you still may be able to earn some interest on your interest by rolling over your term deposit when it reaches maturity and adding the extra interest to your balance.

Lack of flexibility

Unlike some other investment vehicles, term deposits do not offer much flexibility in terms of adjusting your investment strategy during the term. Once the deposit is made, you cannot increase or decrease the amount, change the term, or negotiate the interest rate. This lack of flexibility may limit your ability to adapt to changing financial circumstances or investment opportunities.

Inflation risk

Over the duration of a term deposit, inflation can erode the purchasing power of your funds. If the interest earned on the term deposit does not keep pace with inflation, the real value of your investment may decrease over time.

Opportunity cost

By investing in a term deposit, you tie up your funds for a specific period, potentially missing out on other investment opportunities that may arise during that time. If alternative investments become available that offer higher returns or better align with your financial goals, you may miss out on potential gains by committing your funds to a term deposit.

Interest rate risk

Term deposits typically come with fixed interest rates, meaning you are locked into that rate for the duration of the deposit. If interest rates rise during your term, you may miss out on the opportunity to earn higher returns available elsewhere in the market, such as high interest savings accounts with variable rates.

It's important to carefully consider these drawbacks and assess your individual financial goals, liquidity needs, and risk tolerance before investing in term deposits or exploring alternative investment options.

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 using RateCity’s comparison tables could help you make the best choice to suit your financial goals.

Once you navigate to one of our comparison tables, enter the minimum term duration and deposit amount to find options that match your criteria. You can also use the Filters to narrow down your search results or see what else is available.

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 selected a 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

1. Find a term deposit with the best interest rate for you

The higher a term deposit’s interest rate, the more returns you may be ab;e to make on your money. But the highest rate may not always offer the best deal. You could use our Term Deposit Calculator to calculate your potential earnings based on different interest rates and various investment terms.

2. Choose your term length

Term deposits can be for as little as one month and as long as five years (60 months). The longer you leave your money in, the more interest you could end up earning. Pick your term carefully, because you may not be able to withdraw your money from a term deposit without incurring a penalty.

3. Apply for your term deposit

When you're ready to apply, head to your bank in person or use an online form to sign up and deposit your money.

4. Wait

Once you've deposited money into your term deposit, it’s time to wait until the term ends. Term deposits accrue interest as the deposit matures, but you can't take the money with its interest out until after the term has ended without incurring costs. Most banks and lenders will apply break fees if you take money out of a term deposit early, with a 31-day notice period also often required to do so. You may also see a reduced interest penalty if you decide to take money out before a term deposit has finished.