How business term deposits work
Lock your cash away for a fixed term
A term deposit offers a secure way to invest excess business cash for a set period of time with a guaranteed return.
Earn a fixed rate of interest
The interest rate on a business term deposit is fixed for the duration of the term. It offers certainty and protection from rate fluctuations.
Term durations from 1 month to 5 years
You can choose a term duration to suit your business needs, with a wide range of options between one month and five years.
Choice of interest payment frequencies
The interest on a business term deposit can be paid to your business either at the end of the term, or in regular intervals (monthly, quarterly or annually).
Penalties apply if you withdraw early
Because term deposits have a fixed term, there are penalties if you withdraw the funds early. This could be additional fees and/or an interest rate reduction.
Funds are guaranteed by the Government
Deposits held with any Authorised Deposit-Taking Institution in Australia are guaranteed up to $250,000 per account holder by the Federal Government.
What impacts your business term deposit rate
The interest rate you can earn on a business term deposit will be determined by the bank you choose, but also a range of factors specific to how your deposit is set up.
Term duration
Banks offer businesses different rates depending on the duration of the term deposit they choose. It’s worth checking rates across a range of providers and terms, as small rate differences can have a meaningful impact on your overall return.
Interest payment frequency
Your business is more likely to get a higher interest rate on a term deposit with interest paid at maturity, rather than monthly or quarterly. Depending on what your business needs, the lower return with monthly interest may still be the best option. Some providers offer the same interest rate regardless of interest frequency.
Deposit amount
Some business term deposit providers vary their rates depending on the size of the deposit. A fairly common scenario is for banks to advertise certain rates on deposits up to $2 million, with discretionary pricing for deposits above this level. If you have a large deposit you may be able to negotiate a higher rate than what’s advertised.
Early withdrawal
If you withdraw your funds before the end of your fixed deposit term, your interest rate will likely take a haircut. How much interest you’ll lose depends on the bank’s policies and how much of the term has elapsed. If you want to maximise your return, it’s best to leave your funds where they are until the term ends.
Types of business term deposits
Standard business term deposit
A fixed-term deposit held in Australian dollars paying a guaranteed interest rate for a set period, with funds locked away until maturity.
Flexi business term deposit
Available from a limited number of providers, this option means you can maintain access to a portion of your balance before the term ends (lower rates typically apply).
Farm management term deposit (FMD)
A government-supported deposit for eligible primary producers, allowing farmers to set aside pre-tax income in good years to manage cash flow and reduce taxable income in stronger seasons.
Foreign currency term deposit
A fixed-term deposit held in a foreign currency (e.g. USD, EUR, GBP) that earns interest in that currency, helping businesses manage overseas income or currency exposure.
Corporate/wholesale term deposit
A large-balance term deposit (often above $2 million) tailored for corporate or institutional clients. These typically offer bespoke terms and negotiable rates that may be higher than the rates available to retail customers.
How to choose the best business term deposit
The best business term deposit will be different for each business depending on what they are looking to achieve. But here’s a general guide to some of the characteristics of a quality business term deposit:
- A high rate of interest compared to other similar options.
- A term duration that matches your business cycle and goals – you could even consider spreading your investment across different term durations to manage risk.
- An interest payment frequency that makes sense – e.g. will you need regular cash injections to boost cashflow?
- Favourable reinvestment options – some providers offer a ‘loyalty bonus’ if you reinvest your funds after the initial term ends
Get advice if you need it A term deposit is generally seen as a lower-risk way for businesses to invest funds, but it’s still worth considering financial advice specific to your business before you make any big financial decisions.
Businesses that commonly use term deposits
Business term deposits are used by a wide range of business types across most industries. Their suitability is generally more dependent on business operations, future spending/investment plans and cashflow fluctuations.
Here are three hypothetical scenarios that illustrate how a term deposit could be useful for a business.
1. Setting aside money for tax obligations
A business expects to owe $220,000 to the ATO in 10 months. The business has the funds available, but rather than leaving them sitting in a business bank account, the owner places $200,000 in a 10-month term deposit and keeps a $20,000 buffer in a high interest business savings account.
The business earns a guaranteed return on the term deposit funds and has greater certainty over its ability to meet the tax obligation.
2. Saving for planned equipment or asset purchases
A small medical clinic plans to buy new equipment costing around $95,000 to coincide with a move to new premises in nine months’ time. The business has surplus cash available, but can’t store the equipment until it moves.
The business puts the $95,000 into a 9-month term deposit, timed to mature just before the purchase. The interest earned on the term deposit also offers some protection against possible price increases on the equipment between now and the purchase date.
3. Managing seasonal surplus cash
A retail business generates most of its profit during the Christmas period and has $300,000 in surplus cash by January. But it won’t need the bulk of that money again until August when stock orders begin.
The business owner invests $250,000 in a 7-month term deposit, with interest paid monthly to help cover fixed operating costs during the quieter trading period.
Business term deposit versus savings account
You may be wondering why a business would keep cash in a term deposit instead of a standard business savings account. The reality is either option may be suitable depending on what the business needs. To help you decide, here’s a quick comparison between the two:
| Business term deposit | Business savings account | |
|---|---|---|
Interest rate | Fixed | Usually variable |
Investment duration | Up to 5 years | Open ended |
Interest paid | At maturity, annually, quarterly or monthly | Usually monthly |
Access to funds | Generally need to provide 31 days notice before withdrawing (penalties apply for withdrawal before the end of the term) | Funds are at-call, but bonus interest may be subject to no withdrawals being made in the month |
Depositing additional funds | Not allowed unless you open a new account | Extra funds can be deposited at any time |
