Mozo guides

Term deposit interest - paid monthly or at maturity?

weighing up what type of payment will give you more interest

To make the most of your term deposit interest, you’ll want to pick the right option for your savings goal. One way of going about this is by selecting when your term deposit interest rate is paid.

Some term deposit providers offer different ways you receive your term deposit interest payments.  For example, you might prefer monthly payments, annual payouts (for longer terms) or a single lump sum payment when your term matures.

So which is the right one for you? Which one will earn you more of that all-important interest? Below we've highlighted the differences.

Term deposit interest payment frequencies

The frequency of your term deposit interest payments determines when you see a return on your investment. Term deposit providers will usually offer several options ranging from monthly, annually, or at maturity. However, not all frequencies are available for all terms. 

Just keep in mind that some term deposit providers won’t offer a choice—you’ll only get your interest paid at maturity. 

Interest paid monthly vs interest paid at maturity

So what’s the difference? Check out this comparison of some of the key points that might sway you one way or another.

Paid monthly
Paid Annually
(Excluding 1 Year terms)
Paid at maturity
Interest will be paid gradually over the life of your term deposit.
Interest is paid once every year until the end of the term.
Interest is paid all at once when your term comes to an end.
Generally comes with a slightly lower interest rate to offset the compounding effect.
Interest is usually higher than monthly but lower than having your interest paid at maturity. 
Will often come with a slightly higher interest rate.
Good for keeping you motivated – it can be a pick-me-up to see the interest roll in more often! 
Good for those looking at a more long-term focus for their interest rates. 
Is low maintenance – your money can be out of sight and out of mind until the maturity date rolls around.
You can elect to have the interest paid into your bank account each month for a boost to your monthly budget.
Like monthly deposits, some providers will give you the option of depositing your interest back into your term deposit or nominated bank account.
At the end of the term, you’ll have a nice plump bonus to add to your spending fund.

Term deposit interest payment options

The rules of a term deposit mean that if your interest is paid at maturity, you won’t get your hands on it until then. So if you decide to have your interest paid monthly, what happens to it? Generally speaking you have a couple of options.

You can:

  • Have it paid into your savings account or bank account. One of the great things about monthly interest payments is that they can go straight into your monthly budget. This is great if you don’t like the idea of waiting until your entire term is up before getting your hands on the rewards.
  • Have it added to your balance. Don’t need the interest in your day-to-day spending? You can choose to have it added to the balance of your term deposit to keep earning interest. This is how you cash in on the effect of compound interest.

Be aware that these options are not always available on every term deposit offer – some banks might only offer one way or the other.

How does compound interest work?

Compound interest applies to tons of banking products, including home loans, credit cards and savings accounts. It means interest piles up quicker, which is great for savings products, but not such a bonus for borrowers.

Basically, how it works for a term deposit is that the previous month’s interest is added to your balance, meaning you earn interest on it as well and bag some extra dollars.

For a full rundown of compound interest and how it works, see our compound interest guide.

Will monthly compound interest make my term deposit worth more?

Term deposits tend to have lower interest rates when you choose to have the interest paid monthly. This is because interest compounded monthly is clearly advantageous to the saver and can result in a greater level of saving. Banks know this and so will usually lower the interest rate on an annual or monthly term deposit

It might only be a very minor difference – even as low as 0.01% – but it’s designed so that monthly interest payments won’t really earn you more money. 

Infographic showing a scenario where someone chooses between a term deposit paid monthly vs at maturity with their current bank.

As you can see from the scenario above, choosing to be paid at maturity can sometimes earn you more in interest, because the higher interest rate can offset the value of compounding interest on the monthly option. Plus the longer you stow your money away, the more interest you'll earn.

Use our term deposit calculator to crunch the numbers and work out what effect these different interest rates and interest payment frequencies will have on your savings stash.

Which term deposit option is best?

Whether you choose to have your term deposit interest paid monthly or at maturity, it probably won’t make or break your savings strategy.

What works for one saver might not work for another, so there’s really no wrong or right answer to which interest frequency is better. If you need a regular boost to your everyday budget, monthly interest paid into an external account might be the right choice for you. However, if you’re just looking for higher interest, annually or at maturity might be better.

The important thing is to compare your term deposit options and work out what suits your saving style best.

Top term deposit tips

Here are a few extra pain-free ways to boost the interest your term deposit earns:

  • Maximise your balance: Generally speaking, a higher term deposit balance means more interest.
  • Choose the right term: This will help you budget and avoid early withdrawal fees. Plus if you have your heart set on monthly interest, remember to pick a term that offers it, as shorter terms often won’t.
  • Know your savings goals: Are you after a shopping blowout in two months, or a new car in two years? Working toward a goal will keep you motivated not to throw in the towel and withdraw from your term deposit early.
  • Have an emergency savings fund: Keep it separate from your term deposit, maybe in a savings account. That way you won’t have to withdraw early and pay the penalty fee if something unexpected happens.
  • Have a plan for when your term deposit matures: Don’t fall into the trap of letting your money roll over into a low interest term. Not only will it likely give you a lower return on your savings, but you’ll have to pay the early withdrawal fee to get out of it.

Find a term deposit

Ready to stick your money in a term deposit and start earning interest? The first step is to find the best term deposit to suit you. To do that, head over to our term deposit comparison page to take a look at some competitive offers. Then, narrow it down a bit by taking our term deposit search tool for a spin.

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.

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