Can you withdraw a term deposit before maturity?

For anyone who’s looking to grow their savings, term deposits can be a risk-free and reliable option. Nominate an amount of money and how long you’d like to lock it away and a nice stack of interest will be waiting for you once that time is up. Simple, right?

But circumstances can change, and at some point you might decide you urgently need those funds back in your pocket. While banks won’t prevent you from closing a term deposit early, they don’t necessarily make it easy. So if you’re thinking about making an early withdrawal on a term deposit, here are the conditions and penalties that will apply. 

How do you withdraw a term deposit before maturity?

First things first, if you intend to withdraw all or part of your funds early, you’ll need to provide at least 31 days’ notice to your bank. Some won’t allow you to do this online, so you’ll need to either chat with a representative over the phone or stretch your legs a bit by visiting a branch.

If you’re only withdrawing a portion of your funds prior to the maturity date, keep in mind that what’s left over can’t drop below the minimum deposit amount. And if there are less than 31 days left on your term, the earliest you can access it is at maturity — unless things are absolutely dire, you’ll just have to be patient.

Are there penalties?

Lodging your money with a bank for a pre-specified amount of time allows them to finance things like home loans, credit cards and personal loans, so they generally don’t want customers drawing from term deposits prematurely. Backing out inconveniences them in a pretty big way, so you’ll likely be slapped with a few penalties:

  • Early withdrawal penalty / administration fee
  • Interest rate adjustment

The administration fee for breaking a term deposit early is usually a flat fee of around $30. Along with that, there will be an adjustment to the amount of interest you can expect to receive. For example, if you’ve signed up for a Westpac term deposit, the interest adjustments will look like this:

When withdrawal is madeInterest rate reduction
Less than 7 daysNo interest paid
Less than 20% of term has passed90%
20% to 39.99% of the term has passed80%
40% to 59.99% of the term has passed60%
60% to 79.99% of the term has passed40%
80% to 99.99% of the term has passed20%

Let’s put that into perspective. Imagine you’ve got $100,000 in a 12 month term deposit with Westpac. You’re looking at an interest rate of 1.55% p.a. which will be paid out at maturity. If you decide after just five months that you need that money back in your hands, you can expect a few adjustments to be made.

First of all, you’ll need to provide 31 days’ notice, so the interest rate adjustment will take into account the extra month that will have elapsed by the time you receive your money. With that in mind, the calculations will look something like this.

The amount of interest accrued after six months (let’s say 181 days)

  • $100,000 x 1.55% x 181 / 365 = $768.63

Interest rate adjustment

  • 50% of the term remains, which means a 60% deduction will apply
  • 60% of $768.63 = $461.18
  • $768.63 - $461.18 = $307.45

In the above scenario, you’ll walk away with only $307.45 (along with the $100,000 you initially deposited, of course). And if your bank charges a prepayment administration fee, you’ll be looking at even less. So no matter when you terminate your term deposit, you stand to lose out on a good chunk of interest.

Things get a bit more complicated if interest has been paid out in the interim (many term deposits of one year or more pay out interest monthly). In this case, it might need to be recovered by the bank to account for the interest rate adjustment.

Despite all this, banks do tend to be more lenient in certain circumstances, such as if you’re experiencing extreme hardship. If that’s the case, you’ll receive your deposit back in full, plus all the interest that’s been accrued in the time since. The same goes if the account holder of the term deposit passes away.

How can I avoid having to close a term deposit early?

Ideally, you want to keep a term deposit for the full duration of the term. Having to close it early means you’ll only reap a portion of the benefits. Here are a few things you can do to avoid finding yourself in that position in the first place.

Keep a separate emergency fund

Regardless of your current circumstances, it’s always a good idea to have an emergency fund in case life takes an unexpected turn for the worse. Things like medical emergencies, redundancy, and evictions can hit at any time, and it’s generally advised to have at least three months’ worth of expenses set aside to help cushion the blow. 

Opt for shorter terms

Long term deposits (terms of one year or more) are a pretty big commitment, so if you’re someone who tends to move money around frequently it might be best to avoid them altogether. The key, then, is to find the sweet middle ground in which you’re getting an attractive rate from your term deposit while not committing to a length that’s too much for you. 

Thankfully, there are still a handful of attractive rates with shorter terms on offer. At the time of writing, you can find 5 and 7 month term deposits which offer rates of 2.00% p.a. and 6 month term deposits which offer rates of 2.30% p.a.

If you’d like to compare more, you might want to check out the selection below, or browse our term deposits comparison page for an even more comprehensive look. And if you feel that a savings account would suit you better, there are plenty to consider over at our high interest savings accounts comparison page.

Compare today's top term deposits