Compare term deposits with interest paid monthly

Term deposit interest can be paid monthly if you select this payment frequency when taking out your term deposit. 

You may be offered the choice of having your term deposit interest paid monthly, quarterly, half-yearly, annually, or at maturity. The payment frequency you choose could affect the interest you earn on your savings, and your progress towards your goals.

A term deposit is an agreement that you will keep a sum of money (the deposit) in a bank for an agreed length of time (the term), for which the bank will pay you interest.  

This may sound a lot like a savings account, except a term deposit involves a fixed interest rate, so you can calculate the total interest you’ll earn on your deposit in advance. Also, term deposits often earn simple interest, rather than the compound interest that is more common in savings accounts. This means you’ll earn interest on your initial deposit, but you won’t earn interest on the interest you receive from your term deposit. 

Generally, the longer the term, the more interest you may earn on your deposit, though this may vary depending on the interest rate you’re offered. It’s important to compare term deposits before committing and make some calculations to ensure you’re getting the best option to suit your needs.

If your term deposit reaches maturity (that is, gets to the end of the agreed term), you may have the choice to withdraw the cash from the bank, or “roll over” your deposit for another term. 

You may want to compare term deposit options to make sure you’re rolling over to a term deposit with an interest rate that suits your needs - during the term, rates could have changed and you may find it’s worth switching term deposits before you automatically roll over.

Term deposit interest may be paid into a linked bank account, so you can spend the money, save it, or invest it elsewhere. Some Australians use the interest earned on term deposits to supplement their income, though it’s important to remember that you’ll need to pay tax on this income, much like money earned at your job.

When your term deposit reaches maturity, it may also be possible to add more money to the term deposit balance. This could include adding the interest you’ve earned to your deposit - while it’s not quite compound interest, it does mean you can earn interest on your interest.

It's possible to withdraw the money from your term deposit early if you require access to your cash. However, you’ll usually need to provide plenty of advance notice to the bank (at least 30 days in some cases), and you may miss out on some of the interest you could have earned. If you think you’re likely to need rapid access to your savings in the future, it may be worth comparing savings account options as well as term deposits.  

The more frequently interest is calculated and paid on a term deposit, the more interest you could potentially earn. This means that monthly interest payments could potentially make you more than payments made quarterly, half-yearly, annually, or at maturity.

However, some banks and ADIs may put lower interest rates on term deposits that pay interest monthly compared to term deposits that pay interest less frequently. This means you may not necessarily be getting a better deal by choosing monthly term deposit payments. 

When making a term deposit comparison, it’s worth looking at more than just the interest rates on offer. Checking the repayment frequency options and making a few calculations can give you a clear idea of exactly how much interest you could earn on your deposit, and how much progress you could make towards your savings goals.