How a term deposit can earn you extra savings

hands picking the pieces of term deposits

What's the point of a term deposit? Despite my role as a finance journalist, I was recently stumped in answering this question. 

Why should a 27-year-old consider depositing thousands of dollars for several years? After all, most of the older Gen Z generation–myself included–only have an average of $7,000 in savings at a given time, according to Westpac data.

So I decided to deep dive into why young people might consider term deposits.

What is a term deposit?

A term deposit is a low risk investment that many financial institutions offer. Think of it as a locked saving account with higher interest rates. You put away a large sum of money for a period of time (a month to five years), then the money sits there earning you interest that can either be paid monthly, annually or at maturity

Unlike savings accounts, term deposits require a high minimum balance to open. This could be anywhere from $1,000 to $5,000. Also, remember that you don’t have easy access to the money while it sits in the term deposit. 

So, what’s the benefit?

How term deposits work

What happens to your money while it sits silently in a term deposit account? Let’s look at some examples below.

Steve has received a $25,000 inheritance from his grandparents. Rather than spending it, he wants to put it away in a term deposit so it earns some interest. He used our term deposits calculator and saw that after five years he’d earn over $5,000 with a 4.15% p.a. interest rate–the highest in our database.

term deposit 5k interest

However, Steve thinks five years is too long to not have access to his inheritance. So instead, he puts his money into a 1-year term with an interest rate of 2.90% p.a.

term deposit calculator 727 interest

While $725 doesn’t look like much at a glance, consider the difference with a standard savings account. If Steve had put his $25,000 in a savings account with an average ongoing interest of 0.50% p.a. and no additional requirements, it’d have only earned him $125 in the same year. 

So if Steve isn’t looking to touch the money for a long time, putting it in a longer term deposit might be a better option.

Should I get a term deposit?

It depends! If you’re like Steve, with a massive inheritance, a term deposit could help provide a safe place to stash it and earn you extra money too. 

Everyone’s situation is different, so double check what is doable for your finances and needs. 

If you feel like you need more information about term deposits before committing to one, get stuck into Mozo’s term deposit guides. Alternatively, you can start comparing term deposits below.

Term deposit comparisons on Mozo - last updated 30 June 2022

Search promoted term deposits below or do a full Mozo database search . Advertiser disclosure
  • Mozo Expert Choice Badge
    Term Deposit
    interest rate
    Minimum deposit
    Govt Deposit Guarantee
    3.00% p.a.
    2 years
    Yes up to $250,000

    $0 account keeping fees. Interest calculated daily. Flexible payment options. Standard terms available from 3 to 36 months. Qudos Bank is protected under the Financial Claims Scheme up to $250,000.


* 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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