Best term deposit rates

What is a term deposit?

A term deposit (also known as a term investment) is a way of investing your money for a set amount of time and for a set interest rate.

For example, a term deposit might have a term of 1 year and deliver a return of 5% p.a. In this example, if you were to invest $10,000 you would accumulate $500 in interest, leaving you with a total of $10,500 at the end of the term.

Many banks offer a range of terms, from as short as 30 days to up to 5 years. But as the term changes, so does the rate of return offered (see our up-to-date comparison table for examples).

All term deposits also require you to involve a minimum amount of money. This could be as low as $1,000 or as high as $10,000, depending on the bank or financial institution and the term deposit products they offer.

How is a term deposit different from a savings account?

Term deposits and savings accounts offer similar interest rates and have similar restrictions, but there are some important differences.

Firstly, a term deposit will reward you with a higher interest rate — usually around 1-2% p.a. more than you would earn if you were to keep your money in a high-interest savings account.

But with that higher rate of return comes less flexibility. Once your money is in a term deposit, it must remain there until the term is complete, but that is different with a savings account.

Notice savings accounts (which have the highest interest rates of all savings accounts) do require a notice period of either 32 or 90 days when you want to withdraw your money, but other types of savings accounts have no notice period requirements (although other requirements may apply).

Savings accounts also usually have no minimum deposit requirement, while term deposits always do. This minimum deposit can range from $1,000 to up to $10,000.

For these reasons, a savings account may be more suitable if you need greater flexibility and cannot commit to the stricter requirements that a term deposit has.

You can compare savings accounts here.

What if I need to withdraw money from my term deposit early?

You must keep your money in the term deposit for the full length of the term (until maturation) in order to get the total rate of return.

You may be able to negotiate an early withdrawal from the term deposit with your bank (if you can prove you are in financial hardship, for example), but in most circumstances, you will be charged an early termination fee or penalty (usually a reduction in the interest rate you would have earned).

Different financial institutions have slightly different ways of managing early withdrawals, but generally, you will have to provide a strong reason why you need to withdraw the money early. Even then, the institution does not have to agree to let you withdraw your money early.

Some institutions offer a “cooling-off” period during which you break from the term deposit with no repercussions. However, not all offer this and for those that do the cooling-off period is usually only seven days.

Because of the difficulties involved in withdrawing money from a term deposit, it is important to carefully consider whether you should make the investment in the first place (especially how much you plan to invest and for how long.

How to choose the right term deposit

The goal of choosing the right term deposit is to find the best possible rate of return while ensuring you can comfortably meet its conditions.

Here we look at the factors to consider when choosing a term deposit.

The term duration and investment amount

Term deposits range from as little as one month to five years and the longer you can commit to, the more you will earn in interest.

However, choosing the right term length can require careful consideration and planning ahead. Will you need access to that money in the near future? Do you anticipate any large purchases or financial demands you will have to meet?

Only invest an amount you can comfortably live without for a term duration that is manageable for your circumstances.

The interest rate

Once you know how much you can invest and the duration that suits you, look for the term deposit option that provides the best interest rate.

There are many financial institutions out there offering term deposits so there is no shortage of options. Be sure to compare what’s available (use our comparison table above for help) to be confident you are getting the best possible rate.

Remember that all term deposits have a minimum investment requirement. This means if you intend to invest a maximum of $5,000, you won’t be able to choose an option with a minimum deposit requirement of $10,000.

Early withdrawal terms and penalties

Term deposits don’t usually involve fees or charges, except if you want to withdraw your money before it has matured.

You shouldn’t enter into a term deposit if you believe you might have to withdraw it before the term ends. But the unexpected can happen, and even if it seems very unlikely at the start, it is still important to check what the penalty will be if you do need to access your funds before the full term is complete.

Check the circumstances in which the financial institution may allow an early withdrawal along with any penalties they will charge for doing so.