How to choose the best term deposit option
Interest rate
The interest rate on a term deposit dictates what return you’ll get from your money. A lot of people simply prioritise finding the highest rate available, but there can be situations where a term deposit with a lower rate could be more suitable, based on other factors explained here.
The term
The interest rate you earn on a term deposit can vary massively based on the term duration – even on accounts from the same provider. Remember, you won’t be able to access the money in a term deposit during the term (without penalties applying) so choosing a suitable term is key.
Interest payment frequency
For some savers, how often you receive interest payments is particularly important. An example could be if you will rely on the interest payments as income for day-to-day living. Just bear in mind that term deposits paying interest more frequently often have a reduced interest rate.
Min and max deposit
Check how much the provider actually allows you to deposit, and whether the top interest rate only applies to deposits above a certain amount. Where there is a maximum deposit amount, check if that applies per customer or per account. You may be able to spread funds across multiple term deposit accounts.
Rules (and penalties) for early withdrawal
Ideally you will choose a term that matches your plans for the money deposited, but it’s worth checking what happens (and what it will cost you) if you need to withdraw the money early for any reason. A reduced interest rate and/or fees usually apply. That's different to a high interest savings account where you can withdraw your money at any time.
Authorised deposit-taking institutions
Make sure the term deposit you choose is offered by an authorised deposit-taking institution (ADI). Only deposits with these providers (up to $250k per customer per provider) are guaranteed by the Australian Government’s Financial Claim Scheme.
Reinvestment options
Some term deposits allow you to build on your savings by reinvesting the interest earned. Also consider what happens when the term ends and what options the provider offers. Some banks offer a loyalty bonus if you roll your deposit over into a new term.
Get advice if you’re unsure
Term deposits are generally considered to be lower risk than other investments, but you may still benefit from getting financial advice before deciding if investing in a term deposit is the right approach for you and which type of account will be best.
Term deposit versus savings account
Term deposit
- Fixed interest rate
- Options of fixed interest terms between between 1 month - 5 years
- Penalties apply if you withdraw your money before the end of the term
High interest savings account
- Variable interest rate, often made up of a base rate and bonus savings rate
- No set time frame on the account and you can top up your savings
- You can withdraw your money at any time
New research from Money.com.au shows that 19% of Australians keep their savings in a term deposit, while 33% leave it in a standard transaction or everyday account. More than half of Australians (53%) put their savings into a high-interest savings account.
How to open a term deposit
You can usually open a new term deposit account online through the provider’s website. This should only take a few minutes, assuming you’re eligible and have your ID handy.
To open a term deposit, you’ll generally need to:
- Be an Australian resident with an Australian postal address.
- Be 18 years of age or older.
- Provide information from your identity documents to prove your identity (Australian Passport, driver's licence, Medicare or Centrelink Card).
- Provide a tax file number if you don’t want the bank to withhold tax on interest paid.
