What is a term deposit?

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A term deposit lets you invest a set amount of your money for a fixed period of time to help you build up your savings. So how does a term deposit work and what features should you look for?

Key points:

You can invest anything from a $1,000 to more than $1m with a term deposit
You may find a higher interest rate with a term deposit than you would with a savings account for larger amounts
Penalties may apply if you access your money before your term deposit matures

With a term deposit, you can invest anything from as little as $1,000 at some financial institutions to more than $1m in some cases. Your money is invested at an agreed interest rate for a fixed period of time, or term, usually between one month and up to five years.

You should usually only access your money at the end of the term, known as maturity, to take full advantage of the agreed term deposit rate. Any attempt to access your money earlier than maturity may incur a penalty.

One of the advantages of term deposits is that most come with no set up or account fees, according to the Australian Government’s Moneysmart website.

That’s why term deposits generally suit people who are looking for a lower-risk investment with a certainty of return.

There has been a shift towards investment in term deposits – away from easy access savings – as interest rates have been rising since May 2022, according to the Reserve Bank of Australia (RBA).

How does a term deposit work?

With a term deposit you agree to lock away your money for a set period of time where it will accrue interest at the agreed term deposit rate.

You may find that you can access a higher rate of interest than you would if the money was in an everyday savings account (without bonus interest) where you still have easy access to your money, particularly when it comes to larger sums and longer terms.

Moneysmart says that generally, the longer the term of your deposit, the higher the interest rate, although this may not always be the case. You should check carefully the various term deposit rates offered by each institution when considering any investment. Some longer term deposit rates can be lower than mid-term investments.

You may be able to select how frequently the interest is paid on your term deposit. For example, you may be able to opt for the interest to be paid monthly, quarterly, every 12 months or at maturity, depending on the length of your term.

Look carefully though at the per annum (p.a.) interest rate you’re offered to see if it makes any difference to the amount of the final interest payment.

You can use Canstar’s term deposit calculator to get an idea of how much interest you can expect on your term deposit, based on the amount you invest, the term, and the term deposit rate. Some institutions offer their own term deposit calculator on their website.

When the term ends (for example, at the end of its 12-month term), it is said to have reached ‘maturity’. At this point, you may choose to access your money or opt to reinvest (or rollover) some, or all, of the amount into a new term deposit.

Who offers term deposits?

Term deposits are offered by many authorised deposit-taking institutions (ADIs) in Australia, including the big four banks – CommBank, Westpac, ANZ and NAB – as well as many other banks, credit unions and financial providers.

If the ADI is not on the Australian Prudential Regulation Authority’s list, then according to Moneysmart, anything offered by them is not a term deposit and will not be covered by the financial claims scheme (FSC). The FSC guarantees to pay eligible account holders up to $250,000 to replace any deposits in the unlikely event your bank, credit union or building society fails.

If you’re interested in investing in a term deposit you might want to consider the financial institutions Canstar recognises as offering quality term deposit products across rates, terms and product features in our annual Term Deposit Awards.

When considering any term deposit investment you should read carefully the Target Market Determination (TMD) and other relevant documents to see if it’s right for you. You might consider seeking some independent financial advice.

Frequently Asked Questions about Term Deposits

The interest rates available on a term deposit can vary depending on the provider, the amount you’re investing and the term you’re considering.

Some institutions may even offer a bonus on the interest rate if you already hold an account with them.

Again, remember to check carefully to see how the term deposit rate varies with the term duration: a longer investment doesn’t always mean a higher interest rate.

Compare term deposits

Term deposits are considered a safe investment, although you may not earn as much interest from a term deposit as you might by pursuing some alternative investment strategies.

Remember, that deposits of up to a total of $250,000 per account holder, per institution offered by an ADI in Australia are protected under the financial claims scheme. That includes any term deposits you have with a listed institution.

But APRA warns that some banks, building societies or credit unions may operate multiple banking businesses with different trading names under the same banking licence. If you’ve multiple deposits – including term deposits – in businesses operating under the same licence you will only be covered up to a total of $250,000.

There are several features you should consider when looking to compare term deposits. They include:

the interest rates on offer for different terms
the ideal term for your term deposit
how easy it is to open up a term deposit
if a maturity reminder is provided and how it’s delivered
if there’s an automatic rollover option for the term deposit
how many days you’ll have to make amendments and add funds to the term deposit
any fees or penalties for early access to your term deposit before maturity

Whether you’re considering a term deposit as a conservative investment option or as part of a wider investment mix, you may like to consider seeking professional financial advice before making any decision.

You can find out more about what to look out for with free financial advice, as well as about independent financial advisers and planners in Australia.

You can apply for a term deposit in much the same way as you’d apply for a normal bank account. The process may be simpler if you’re already an existing customer with the institution offering the term deposit you’re interested in.

Once you’ve decided how much money you want to invest, at a set term deposit rate, you can usually complete an application form online. Or you can head into a local branch office if one is available.

Compare term deposits

Cover image source: electra/Shutterstock.com

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This article was reviewed by our Content Lead Ellie McLachlan and Deputy Editor, Canstar Amanda Horswill before it was updated, as part of our fact-checking process.

Michael Lund

Former Senior Finance Journalist

Michael is an award-winning journalist with more than three decades of experience. As a senior finance journalist at Canstar, Michael's written more than 100 articles covering superannuation, savings, wealth, life insurance and home loans. His work's been referenced by a number of other finance publications, including Yahoo Finance and The Motley Fool.

Michael's worked as a reporter and producer for the BBC and ABC, including for Australian Story. He's also worked as a feature writer for The Courier-Mail and as a science and technology editor and commissioning editor at The Conversation.

Michael's professional awards include a Queensland Media Award and a highly commended in the Walkleys. In 2021 he was part of a team that was a finalist in the Australian Museum Eureka Prize for Science Journalism. He holds a Bachelor of Science in mathematics and applied physics (Manchester Metropolitan University) and a Masters of Science in pure mathematics (Liverpool University).

You can connect with Michael on LinkedIn.

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