Mozo guides

Long term deposits

young business woman running from a laptop looking for the best long term deposit

Term deposits are great if you’re a saver looking for predictability and stability when it comes to your hard-earned money. But is going long term with one of these accounts the kind of thing that you should be signing up for? Let’s have a look.

How long can a term deposit last?

Term deposits are basically savings accounts that require you to commit your funds for a set period, typically ranging from 1 to 5 years or more. In return for this commitment, banks often offer higher interest rates compared to regular savings accounts or short term deposits.

Just be careful with how long you lock in for as early withdrawals come with significant penalties like reduced or no interest and fees. So, if you’re going to go long term, make sure you have a solid plan in place before committing your funds.

Is a long term deposit right for me?

Going for a long term deposit requires a significant amount of financial planning. With a short term deposit you don’t have to worry much as the cash will be made available in a relatively brief amount of time. Long term deposits, on the other hand, can last many years up to a maximum of five. 

To make sure that a long term deposit is exactly what you’re looking for, you should keep some of the following things in mind:

  • You have a rainy day fund: This is just a bit of extra cash on the side that you can dip into in the event of an emergency like a medical situation.
  • You have a long term savings goal: If you’re saving for a big purchase like a first home, then a long term deposit can be a useful vehicle for achieving this. As a low risk investment, a term deposit will keep your stash safe until you’ve built up enough funds to meet whatever goal you have.
  • You’re retired or soon will be: Term deposits can be a useful option for retirees as it is a safe place to keep your cash.  

When will my long term deposit pay interest?

When you’re choosing your term deposit provider, make sure to consider some of the payout frequency options. Generally, more frequent payments will have a lower interest rate, but could be more helpful if you’re using your term deposit as an income stream.

Generally, long term deposits offer the following interest payment options:

  • At maturity: With this option, the interest earned on your deposit is paid out in a lump sum at the end of the selected term. This means you won't have access to the interest until your term deposit matures. However, term deposits with interest paid at maturity often offer higher interest rates compared to those with more frequent interest payments.
  • Annually: Some long term deposits pay interest on an annual basis. This means you'll receive your interest payment once a year on a predetermined date. Annual interest payments can be a good option if you want to have some access to your interest throughout the term without sacrificing too much in terms of the overall interest rate.
  • Monthly: Although less common for long term deposits, some banks may offer the option to receive interest payments on a monthly basis. This can be beneficial if you wish to have a regular stream of interest income from your term deposit. However, keep in mind that term deposits with monthly interest payments may offer slightly lower interest rates compared to those with annual or at-maturity interest payments.

Advantages and disadvantages of a long term deposit

If rates drop, you’ll have a higher one locked in for a long time.
If rates rise, you’ll be stuck on a lower rate
Good for long term savings goals
Once the cash is committed, you won’t be able to access it for years.
Your cash will earn the locked in rate for years to a maximum of five.
You won’t be able to add funds to the account for the entire term, so you can’t increase your balance in order to boost your interest.

Tips to go the distance with a long term deposit

To make sure you’re getting most out of your long term deposit commitment, you should consider:

  • Having a separate emergency fund so you won’t be tempted to withdraw early. You never know what might crop up. Once you’ve committed that cash, think of it as no longer yours until after maturity. 
  • Secure a great interest rate - because you'll be stuck with it for a long time. You don’t want to get 2 years into a 5 year term deposit and realise you could have gotten way more interest just by shopping around a bit. Compare term deposit interest rates before you choose an offer, so you can find the very best option.
  • Opt for a rollover term to extend your earning time. If you get to the end of your term deposit and still don’t need access to your funds, some offers will allow you to rollover into another term - just make sure you check that the interest rate being offered is still the most competitive one around!

What are some long term deposit alternatives?

So what if you’ve read all this and realised that a long term deposit isn’t what you’re looking for? Don’t fret, there are a couple of other options available for you.

  • A short term deposit - term deposits can be locked away for as little as a month, so if years is too long, then it might be worth checking out a shorter term deposit
  • A savings account - a high interest savings account often has a comparable interest rate to a term deposit, especially if you meet any bonus interest requirements. The benefit of a savings account is that you can freely access your cash, although this is usually at the cost of 
  • Investing in shares - Share trading can be a lot riskier than a long term deposit. But, if rates aren’t giving you the return you’re looking for, then shares can be another long term option for investing. 

Where can I find a long term deposit?

You can start by checking out our term deposits comparison page. For more personal results take our term deposit comparison tool for a spin. Alternatively, if you want to know who are crowned best of the best then check out our Mozo Experts Choice Award Term Deposit winners.

Cameron Thomson
Cameron Thomson
Money writer

Cameron has a Bachelor of Creative Writing and History, and a background in broadcast media from his time at 2SER Radio. This diverse set of skills has informed his analytical yet creative approach to dissecting financial data and uncovering long-term trends in consumer finance. Cameron is RG146 certified for Generic Knowledge and keeps a keen eye on current and historical deposit and savings rates on the Mozo database. Cameron is also interested in tracking the investment space, particularly share trading platforms, to help Aussie consumers save and invest their money more wisely.

* 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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