Can term deposits be a source of income?

Generating a steady income stream is a priority for a lot of us, especially for those looking to supplement their earnings or secure a stable cash flow in retirement. Term deposits offer a reliable and predictable way to earn income.

The basics of term deposits

A term deposit is a kind of investment where you deposit a lump sum of money for a fixed period at a predetermined interest rate. The term can be anywhere from a month to up to 5 years, and the interest rate usually remains fixed for the length of the term. 

Upon maturity, the investor receives the principal amount along with the accumulated interest. However, some accounts offer to pay interest monthly and annually, usually at a lower term deposit interest rate to offset the effects of compound interest.

Term deposit features

  • Fixed interest rates: Offers a guaranteed return, unaffected by market fluctuations.
  • Choice of term: Ranges from short-term (1-12 months) to long-term (up to 5 years).
  • Safety: Generally considered a low-risk investment, with Authorised Deposit-taking Institutions (ADI) guaranteed by the Australian government under the Financial Claims Scheme (FCS). 
  • Penalty for early withdrawal: Accessing funds before maturity usually comes with a penalty of a reduced interest rate.

How much can a term deposit earn you in income?

To understand how much one can earn monthly from term deposits, let’s consider a hypothetical scenario:

Short term
Deposit Amount: 
$30,000
Term Length:
1 year
Monthly Interest Rate:
4%
Monthly payout: 
$100
Total interest
$1,200
Long term
Deposit Amount: 
$30,000
Term Length:
5 year
Monthly Interest Rate:
4%
Monthly payout: 
$100
Total interest
$6000

With a good interest rate and a fair amount of cash, term deposits can be a fairly solid source of income. However, $100 a month is basically just a helpful boost. 

Here we can see some of the main advantages and disadvantages of this approach to income production:

Advantages of term deposits

  • Predictability: Provides a known return which can help you craft a more accurate budget.
  • Flexibility in terms: Allows for strategic planning around cash flow needs.

Disadvantages of term deposits 

  • Lower returns compared to equities: Stocks and mutual funds tend to have higher income for lower investments.
  • Inflation risk: Fixed returns might not keep pace with inflation, potentially eroding purchasing power over time.
  • Liquidity concerns: Funds are locked in for the term, making it less ideal for emergency cash needs.

How to get a good term deposit interest rate?

There are really only two ways to increase the amount of cash you’d be receiving—interest and deposit size. Most term deposits don’t allow for extra deposits until maturity (where you can roll the previous balance over with an extra amount of cash). So, generally speaking, you’d want to find a good interest that means you won’t have to deposit as much. 

One way to get an idea of what a “good” interest rate is could be through averaging out provider rates on offer. Thankfully, the Mozo data team has done the heavy lifting for us and presented us with some of the averages for different term deposit terms:

Term Length
Average Interest Rate
1 year
4.63%
2 years
4.12%
3 years
3.95%
4 years
3.82%
5 years
3.85%

* correct as of 20 February

At Mozo, you can also compare term deposits on our hub page so you can get an idea of all kinds of rates and features that the best term deposits offer. Alternatively, you check out some of the providers in the table below…

Term deposit comparisons on Mozo - last updated 16 April 2024

Search promoted term deposits below or do a full Mozo database search. Advertiser disclosure
  • Mozo Expert Choice Badge
    Term Deposit

    4.75% p.a.
    1 year

    $1,000

    Yes up to $250,000

    Enjoy a competitive fixed interest with the choice of 1 month to 5 year terms. Start with as little as $1,000. Interest paid monthly, quarterly, half yearly or yearly. Receive a 0.10% loyalty bonus when you automatically reinvest your Term Deposit before maturity. (Terms and Conditions apply)

    Compare
    Details
  • Term Deposit

    4.80% p.a.
    9 months

    $1,000

    Yes up to $250,000

    Enjoy the certainty of a fixed interest rate combined with the convenience of online banking to set up and manage your term deposit at maturity. You can start investing from as little as $1,000 or up to $5,000,000.

    Compare
    Details
  • Mozo Expert Choice Badge
    Term Deposit

    4.85% p.a.
    6 months

    $1,000

    Yes up to $250,000

    Enjoy a competitive fixed interest with the choice of 1 month to 5 year terms. Start with as little as $1,000. Interest paid monthly, quarterly, half yearly or yearly. Receive a 0.10% loyalty bonus when you automatically reinvest your Term Deposit before maturity. (Terms and Conditions apply)

    Compare
    Details
  • Online Term Deposit

    4.85% p.a.
    9 months

    $5,000

    Yes up to $250,000

    No set-up or account keeping fees. Deposits up to $250,000 per customer are guaranteed by the Australian Government. Mozo Experts Choice winner for Term Deposit 2022.

    Compare
    Details

* Different interest rates apply to different amounts or different interest payment frequencies.

^See information about the Mozo Experts Choice Term Deposit Awards

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