Term deposits can be held inside superannuation — either through a standard super fund’s investment options or directly within a self-managed super fund (SMSF). The key advantage is that interest income inside super is taxed at 15% (accumulation phase) or 0% (pension phase) — significantly below individual marginal tax rates.
Term Deposits in Standard Super Funds
Most industry and retail super funds offer a cash investment option that functions similarly to term deposits — investing in short-term fixed-rate instruments, bank deposits, and money market assets.
However, most standard super funds do not offer direct term deposits — they pool members’ cash into managed cash options. You cannot choose a specific bank, term, or rate within a standard super fund.
If you want direct control over term deposit selection (bank, rate, term), an SMSF is the appropriate vehicle.
Term Deposits in an SMSF
An SMSF can invest directly in term deposits with any APRA-regulated ADI — exactly as an individual investor would, but with the SMSF as the account holder.
Key SMSF term deposit rules
Arm’s length: The term deposit must be opened with an unrelated bank on commercial terms. You cannot place SMSF funds in a term deposit at a bank where you receive non-commercial treatment.
Sole purpose test: The investment must be for the purpose of providing retirement benefits to members — not for personal benefit. A term deposit is a straightforward, compliant investment for this test.
Liquidity: SMSF trustees must maintain enough liquidity to meet expenses (admin fees, insurance premiums, pension payments). Locking all SMSF funds in long-term term deposits may breach liquidity obligations.
Trust deed: Confirm the SMSF trust deed permits investment in term deposits (most do by default, but verify).
Opening an SMSF term deposit
The process:
- Provide the bank with your SMSF’s ABN, TFN, and trust deed (or summary)
- Some banks have dedicated SMSF term deposit products — others process as a standard business term deposit in the SMSF’s name
- The account title must reflect the SMSF (e.g., “The Smith Family Super Fund”)
- Interest is paid into the SMSF’s bank account (separate from any personal accounts)
Tax Advantage of Term Deposits in Super
This is the primary reason to hold term deposits inside super rather than personally:
| Investor type | Tax on interest income |
|---|---|
| Individual (taxable income $80,000–$120,000) | 34.5% (incl. Medicare levy) |
| Individual (taxable income $45,001–$120,000) | 34.5% |
| SMSF — accumulation phase | 15% |
| SMSF — pension phase | 0% |
Example: $100,000 term deposit at 5.00% = $5,000 interest
- Personal name (34.5% rate): Tax = $1,725 → Net interest = $3,275
- SMSF accumulation (15%): Tax = $750 → Net interest = $4,250
- SMSF pension phase (0%): Tax = $0 → Net interest = $5,000
For high-income earners, holding term deposits in super roughly doubles the after-tax interest income compared to personal name.
Which Banks Accept SMSF Term Deposits?
Most APRA-regulated banks accept SMSF term deposits, including:
- CommBank, ANZ, Westpac, NAB
- ING, Macquarie Bank, Judo Bank, Rabobank, Bendigo Bank
- Some credit unions and building societies
Requirements vary — some require in-person or phone application; others accept online applications with SMSF documentation.
Government Guarantee for SMSF Term Deposits
SMSF term deposits are covered by the FCS up to $250,000 per SMSF per ADI — the SMSF is treated as one depositor. Spreading across multiple ADIs preserves coverage for larger balances.
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Frequently Asked Questions
Can I put a term deposit in my super fund in Australia? In a standard super fund, you can typically select a “cash” investment option, which invests in short-term deposit instruments — but not a specific term deposit. To choose your own term deposits directly (specific bank, rate, and term), you need an SMSF.
Is a term deposit in an SMSF a good idea? For retirees in pension phase (0% tax on earnings) or members close to retirement, term deposits in an SMSF provide tax-free interest income and capital security. The appropriateness depends on your overall SMSF investment strategy, age, and income needs. SMSF trustees must ensure the investment strategy is documented and appropriate.
How much of an SMSF should be in term deposits? This depends on the fund’s investment strategy, member ages, and risk tolerance. For retirees drawing a pension, a meaningful cash/term deposit allocation (12–24 months of pension payments) is commonly used as a liquidity buffer. The appropriate allocation is a matter for the SMSF’s documented investment strategy — seek advice for complex situations.
This article provides general financial information only and does not constitute SMSF or financial advice. SMSF trustees have legal obligations — seek professional advice before establishing or managing an SMSF. Speak with a licensed financial adviser through the ASIC financial advisers register or MoneySmart.