Breaking a term deposit before its maturity date is possible — but comes with interest rate penalties. Understanding how these penalties work helps you decide whether breaking early is worthwhile and how to minimise the cost if you must.
Can You Break a Term Deposit Early?
Yes — under APRA guidelines, ADIs must allow early withdrawal of term deposits in cases of financial hardship without penalty, and most allow early withdrawal in other circumstances with a penalty.
However, banks are not required to allow early withdrawal for non-hardship reasons (though most do in practice). Check your specific term deposit’s product disclosure statement (PDS) before committing.
How Early Withdrawal Penalties Work
Penalties for breaking a term deposit early are expressed as an interest rate reduction on the interest earned — not as a flat fee. The penalty is applied to the interest component, not the principal (your original deposit is returned in full).
Common penalty structures
Reduction on interest earned (most common):
| Time remaining on term | Interest reduction |
|---|---|
| More than 80% of term remaining | Up to 80% penalty (you receive ~20% of interest earned so far) |
| 50–80% of term remaining | Up to 60% penalty |
| 20–50% of term remaining | Up to 40% penalty |
| Less than 20% of term remaining | Up to 20% penalty |
Actual penalty structures vary by institution — always read the PDS.
Example: $100,000 at 5.00% for 12 months, broken at 6 months (50% through term):
- Interest earned to date: $2,500
- Penalty (40% reduction): $1,000
- Net interest received: $1,500
- Principal returned: $100,000
You receive your full principal plus a reduced amount of interest — you never lose principal.
Financial Hardship — Waived Penalties
APRA requires ADIs to waive break fees in genuine cases of financial hardship. If you face serious financial difficulty (medical emergency, inability to meet living expenses), contact your bank directly and request hardship assistance. Hardship definitions and processes vary by institution.
Process for Breaking a Term Deposit Early
- Contact the institution: Phone, online banking, or in-branch
- Request early withdrawal: Provide account details and the amount to withdraw
- Receive penalty calculation: The bank will tell you exactly how much interest you will receive after the penalty
- Confirm or decline: You can choose not to proceed after seeing the penalty figure
- Funds transferred: Usually within 1–3 business days
When Breaking Early Makes Financial Sense
Despite penalties, breaking early may be worth it if:
Interest rates have risen significantly: If you locked in at 3.5% and rates are now 5.5%, breaking and rolling into a new deposit at 5.5% may recover the penalty cost within a few months.
Emergency use of funds is necessary: Accessing funds for a genuine financial emergency is more important than optimising term deposit interest.
Better opportunity available: If an investment opportunity arises with returns significantly above the penalty-adjusted cost of breaking, it may be justifiable — but this requires careful calculation.
Calculating the Break-Even Point
If you break to reinvest at a higher rate, calculate months to break-even:
$$\text{Break-even months} = \frac{\text{Penalty amount}}{\text{Monthly rate benefit}} $$
Example: $100,000 deposit; $800 penalty; new rate is 1.0% higher than current rate
- Monthly benefit of higher rate: $100,000 × (1.0% ÷ 12) = ~$83/month
- Break-even: $800 ÷ $83 = ~10 months
If you have more than 10 months left in the original term, breaking to reinvest at 1.0% higher makes mathematical sense. If fewer than 10 months remain, completing the original term is better.
Alternatives to Breaking Early
Before breaking, consider:
- Personal loan or line of credit: For short-term cash needs, a personal loan may cost less than the term deposit break penalty
- Redraw from mortgage: If you have a redraw facility with equity, accessing that may be cheaper
- Term deposit ladder: Prevented the problem entirely by staggering maturity dates
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- What Are Term Deposits Australia
- Term Deposit Ladder Australia
- Short-Term vs Long-Term Term Deposits Australia
- Term Deposits hub
Frequently Asked Questions
How much does it cost to break a term deposit early in Australia? Penalties vary by institution and how much of the term remains. A common structure reduces the interest earned by 20–80% depending on how early you break. Your principal is always returned in full — only the interest is penalised.
Can I break a term deposit early for hardship in Australia? Yes — under APRA guidelines, banks must allow early withdrawal without penalty in cases of genuine financial hardship. Contact your bank and explain your situation. Documentation of hardship may be required.
Is it better to break a term deposit or take a personal loan? This depends on the penalty cost vs the personal loan rate. If breaking the term deposit costs $500 in interest, and a personal loan for the same period costs $800 in interest, breaking is cheaper. Calculate the specific numbers for your situation before deciding.
This article provides general financial information only. For advice tailored to your situation, speak with a licensed financial adviser through the ASIC financial advisers register or MoneySmart.