What is a term deposit?

Sub Editor · 28 September 2021
Term deposits are a popular form of investment if you’re looking to build up your savings. 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. Term deposits are popular with investors who prefer capital security and a set return. Many investors also use term deposits as a part of their wider investment mix. Typically, the money can only be withdrawn at the end of the period – or earlier with a penalty attached.

Who offers term deposits?

Term deposits are offered by many authorised deposit-taking institutions (ADIs) in Australia, including our big four banks – CommBank, Westpac, ANZ and NAB – as well as many other banks, credit unions and financial providers. APRA has a full list of ADIs in Australia that may offer customers term deposit products. Canstar has revealed which bank and customer-owned institution are offering Outstanding Value for their rates, terms and product features across their term deposit products in our annual Term Deposit Awards.

What are the interest rates on term deposits?

The interest rates on term deposits can vary depending on the provider and the term. You can compare term deposit interest rates with Canstar, and use our term deposit calculator to work out what your expected earnings might be. You may also be interested in finding out the highest term deposit rates currently on offer, including the interest rates on offer from Australia’s big four banks – CommBank, Westpac, NAB and ANZ – for a term deposit.

Can you lose money with a term deposit?

Term deposits of up to $250,000 per account holder, per institution that are offered by ADIs in Australia are protected under the Financial Claims Scheme. ADIs are regulated by the Australian Prudential Regulation Authority (APRA). Term deposits are considered a safe investment, although you may not earn as much interest from a term deposit as you might by pursuing alternative investment strategies.

What should you consider when comparing term deposits?

Features you may like to consider when comparing term deposits include:

  • interest rates on offer for different terms
  • what the ideal term or tenure is for your term deposit (from one month to five years)
  • how easy it is to open up a term deposit
  • if there is a minimum investment amount
  • if a maturity reminder is provided and how it is delivered
  • whether there’s an automatic rollover of the term deposit
  • how many days you’ll have to make amendments and add funds to the term deposit
  • whether early withdrawals are possible without penalties or fees applying
  • what notice period applies if you are considering an advance notice term deposit (this is a type of term deposit that enables making a withdrawal if you give required notice for this)

If you are 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 to support in your decision making. You can find out about what to look out for with free financial advice, as well as about independent financial advisers and planners in Australia.

How do I apply for a term deposit?

Applying for a term deposit is much the same as applying for a normal bank account and the process may be simpler if you are an existing customer with a bank or a customer-owned institution. Once you have decided how much money you want to invest at a set interest rate, you usually complete an application form and apply for a term deposit that’s offered by your preferred provider.

Main image source: Billion Photos/Shutterstock.com

Originally written by Justine Davies and updated by Jacqueline Belesky.

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This content was reviewed by Sub Editor Tom Letts as part of our fact-checking process.

Jacqui is a senior communications professional with 15 years of experience in journalism, editing and public relations. She brings international experience as a Global Content Manager for ABB and has held senior editorial roles in Australia with the Queensland Government, UQ and John Wiley & Sons.

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