A term deposit is a fixed-term, fixed-interest savings account offered by Australian banks, credit unions, and building societies. You deposit a sum of money for an agreed period at a set interest rate — when the term ends, you receive your original deposit plus the interest earned.
How a Term Deposit Works
The mechanics are simple:
- Deposit: You transfer funds to the institution offering the term deposit
- Term: You agree to leave the money untouched for a set period — commonly 1, 3, 6, 9, or 12 months; up to 5 years
- Interest rate: The institution agrees to pay a fixed rate for the entire term
- Maturity: At the end of the term, the institution returns your principal plus interest
Unlike a savings account (where the interest rate can change at any time), a term deposit rate is locked in for the full term. This predictability is the product’s core appeal.
Who Offers Term Deposits in Australia?
Term deposits are offered by authorised deposit-taking institutions (ADIs) regulated by APRA:
- The Big Four banks: CommBank, ANZ, Westpac, NAB
- Mid-tier banks: ING, Macquarie Bank, Bendigo Bank, Bank of Queensland, MyState
- Online-only banks: Judo Bank, Rabobank, AMP Bank
- Credit unions and mutual banks: Teachers Mutual, Heritage Bank, People’s Choice
Mid-tier and online institutions typically offer higher rates than the Big Four, as they compete more aggressively for deposits.
Types of Term Deposits
Standard term deposit
The most common type — fixed amount, fixed rate, fixed term. Interest paid at maturity or at set intervals (monthly, quarterly, annually).
Callable term deposit
The institution may “call” (end) the deposit early under certain conditions. Less common; offers slightly higher rates in exchange for this risk.
Negotiated/wholesale term deposit
Available for larger deposits (typically $250,000+). Rates are individually negotiated. Not typically relevant for retail investors.
Notice account (not a true term deposit)
Requires advance notice (e.g., 31 days) before withdrawal rather than a fixed term. Offers more liquidity than a standard term deposit with slightly higher rates than savings accounts.
Minimum Deposit Amounts
| Institution type | Typical minimum |
|---|---|
| Big Four banks | $5,000 |
| Mid-tier banks | $1,000–$5,000 |
| Some credit unions | $500–$1,000 |
Interest Calculation
Term deposit interest is calculated as:
$$\text{Interest} = \text{Principal} \times \text{Rate} \times \frac{\text{Days}}{365}$$
Example: $50,000 at 5.00% for 12 months $$\text{Interest} = $50,000 \times 0.05 \times \frac{365}{365} = $2,500$$
For terms where interest is paid monthly or quarterly, the rate is divided across payment periods.
Interest Payment Options
| Payment frequency | How it works |
|---|---|
| At maturity | Interest paid when the deposit ends; simple for shorter terms |
| Monthly | Interest credited monthly; useful for retirees using interest as income |
| Quarterly | Interest credited every three months |
| Annually | For terms >12 months; paid each year |
Monthly payment rates are typically slightly lower than at-maturity rates (to compensate the institution for more frequent payments). For income-focused investors, monthly interest can replace the need for a separate savings account buffer.
What Happens at Maturity
At maturity, most institutions:
- Send a notice 7–14 days before maturity with rollover options
- Automatically roll over to a new term deposit at the current rate (which may differ significantly from the original rate) if no instruction is received
Always review and respond to maturity notices — automatic rollover at an uncompetitive rate is a common and costly oversight.
Government Guarantee (Financial Claims Scheme)
Term deposits in Australian ADIs are covered by the Financial Claims Scheme (FCS) — a Commonwealth Government guarantee:
- Covers up to $250,000 per depositor per ADI
- Activated if an ADI fails — extremely rare in Australia
- Applies to banks, building societies, and credit unions regulated by APRA
For deposits above $250,000, spreading across multiple ADIs preserves coverage.
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Frequently Asked Questions
Are term deposits safe in Australia? Term deposits held with APRA-regulated ADIs (banks, credit unions, building societies) are covered by the Financial Claims Scheme up to $250,000 per depositor per institution. Within this limit, term deposits are among Australia’s safest investments — capital is not at risk from market movements.
Can I add money to a term deposit once it’s open? Generally no — standard term deposits have a fixed deposit amount for the term. To add more, you would open a separate term deposit or wait until maturity and roll over a combined amount.
What is the difference between a term deposit and a savings account? A savings account is flexible — you can deposit and withdraw freely, but the interest rate can change at any time. A term deposit locks your money away for a fixed period at a fixed rate — you typically cannot access funds without penalty before maturity.
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.