Transferring money into an online term deposit? Watch out for this fee trap

If you’ve got some spare cash you’d like to invest, locking it away in a term deposit is a surefire way to see it grow. But did you know that setting up a term deposit can sometimes come with hidden costs?

Right now, it pays to keep this in mind. With two RBA rate cuts already behind us - and more to come in the next few months - many Australians are seeking out term deposits to protect their savings against plummeting interest rates.

And since banks don’t have to wait until the RBA makes a move before cutting rates, there’s no guarantee that the rate you’re eyeing will still be available in even a few days’ time. It’s in the scramble to sign up for a term deposit that Aussies could find themselves slugged with surprise fees.

How transferring into an online term deposit works

First things first, to lodge money in a term deposit, banks will require you to connect an existing bank account. If you’ve already got an account with the bank you’ll be opening the term deposit with, that’s perfect. If not, you can always link one from another bank.

Once those boxes are ticked, the next step is to deposit your funds. You can usually do this in one of two ways:

• Instruct your bank to transfer the amount you’ve nominated from your linked bank account into the term deposit, usually over the phone or via online banking.
• Or, if you’re transferring money from an external bank account, you’ll have the option to submit a cheque. This will draw on the linked account and should be payable to you or the receiving bank.

What fees should you look out for?

Here’s where it gets tricky. As mentioned above, when you’re transferring money into an online term deposit, you’ll need to have a linked account - either with the same bank or another Australian financial institution. 

If you’re using the latter, that bank might charge you a fee to move your money across. So while the term deposit you’re signing up for might not come with any fees, the process of opening one can still wind up costing you.

Say you’re transferring money from your everyday transaction account with Bank A into a term deposit with Bank B. If the amount is larger than the daily transfer limit imposed by the bank - which can be as low as $20,000 - you’ll have to make a telegraphic transfer. That requires Bank A to complete a transfer form, and you’ll end up having to cover the cost. In this case you’ll be looking at a fee in the range of $28.

As Mozo’s banking expert Peter Marshall puts it, “It’s all fine in theory to say that customers can use any bank they want to transfer money into a term deposit, but in reality it can get really expensive.”

Annoyingly, even the receiving bank can charge you to process your transaction. For example, you might be slapped with a bank transfer fee, which isn’t so much something that’s specific to term deposits but a standard part of banks’ operations. In the above scenario, Bank B might charge a fee of around $8.

So to recap, the charges that could pop up when you transfer money into a term deposit are:

• A transfer form fee, from the bank sending the money
• A bank transfer fee, from the bank receiving the money

With all the cuts that are being levelled against term deposits, it pays to keep an eye out for these fees so you aren’t earning less than you possibly could. Currently, online term deposits are still a worthwhile option, and come with much more attractive rates than those offered by the big banks. If you’d like to see the kinds of rates on offer, check out the selection below, or visit our term deposit comparison page for a more in-depth look.