What is a Term Deposit and how does it work?

27 July 2016
Term deposits are a popular form of investment; more than 130,000 individual people have compared term deposit interest rates on Canstar’s database over the past 12 months. So what is a term deposit and what features should you look for?

What is a term deposit and how does it work?

A term deposit is a cash investment held at a financial institution. Your money is invested for an agreed rate of interest over a fixed amount of time, or term. Term deposits can be invested into a bank, building society or credit union.

When the money is deposited, the customer understands that the money is there for the pre-determined period which usually ranges from 1 month to 5 years and the interest rate is guaranteed not to change for that nominated period of time.  Typically, the money can only be withdrawn at the end of the period – or earlier with a penalty attached.

Term deposits are popular with investors who prefer capital security and a set return as opposed to the fluctuations of, say, the share market. Many investors also use term deposits as a part of their investment mix.

The following table displays one-year term deposit products on Canstar’s database, available to consumers looking to invest $10,000. The tables are sorted by advertised interest rate (highest to lowest), and then by provider name (alphabetically). To view products based on other terms and investment amounts you can compare term deposits with Canstar. Check upfront with your provider and read the PDS to confirm the details of any particular product and whether it meets your needs before deciding to commit to it.


Who offers term deposits?

Term deposits are offered by approved deposit taking institutions; our most recent term deposit research compared 90 term deposits from 77 providers including banks, building societies and credit unions. Compare Term Deposits for more details.

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How do I apply for a term deposit?

Applying for a term deposit is much the same as applying for a normal bank account. It’s even easier if you already bank with that institution! Once you have earmarked the amount of money you want to invest and the interest rate you are locking in, it is simply a matter of filling out a form. This can be done online with the majority of institutions. For some eligible customers the application will be processed without stepping foot into a branch.

What interest rates do term deposits offer?

At the time of our latest update (March 5, 2018), the minimum, maximum, and average term deposit rates on Canstar’s term deposits database are as follows:

Current term deposit rates – Min, Max, and Average
Term Min  Max  Average
30d          0.85%           2.10%            1.58%
60d          1.25%           2.10%            1.66%
90d          1.50%           2.70%            2.12%
180d          1.69%           2.65%            2.24%
270d          1.39%           2.70%            2.09%
1 Year          1.55%           2.75%            2.35%
2 Year          1.50%           2.90%            2.51%
3 Year          1.50%           3.00%            2.61%
4 Year          1.50%           3.10%            2.65%
5 Year          1.50%           3.20%            2.73%
Source: www.canstar.com.au

Based on term deposit rates on the Canstar database and an investment amount of $25,000. Rates current as at March 5, 2018.

Be aware that term deposit interest rates change frequently though; you can compare current term deposit interest rates here.  And try our term deposit calculator to work out what your expected earnings might be.

Are there any term deposit tips and traps to be aware of?

Yes! When it comes to selecting a term deposit, the interest rate is only one consideration. Other things you should think about include:


Otherwise known as the length of your investment! The tenure of a term deposit commonly ranges from one month to five years – you need to determine what the ideal tenure is for your personal situation.

Chances of needing access to the money

This relates to the tenure of your investment; while nobody can predict the future, you should consider the likelihood of needing to access your cash early against the length of investment you choose. Early withdrawal or “prepayment” penalties do apply on term deposits.


Australia has a Financial Claims Scheme; a guarantee on bank deposits of up to $250,000 per customer and per institution.  You should nevertheless check the credit rating of your chosen financial institution and ensure that you are comfortable with it.

There are other term deposit traps to be aware of; click here for further information.

Finally – Read the Product Disclosure Statement (PDS)

Direct term despositsAs with all financial products, it is imperative you read the Product Disclosure Statement (PDS) so that you know exactly where you stand on a number of issues. Even if you have previously taken out a term deposit with the same bank, make sure you still read the PDS, as conditions can change and you don’t want to be caught out.

When reading the PDS, pay particular attention to maturity conditions, prepayment penalties and, of course, any fees. Note that the overall return on investment will be affected by any fees you pay, whether at setup or at maturity.

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