Term deposit interest - paid monthly or at maturity?
Choosing the right interest payment schedule for your term deposit can significantly impact your savings strategy. Term deposit providers usually offer options, including monthly payments, annual payouts, or a lump sum at maturity. Understanding which of these choices is important as they can affect the total interest earned.
Below we've highlighted the differences.
Interest paid monthly vs annually or at maturity
So what’s the difference? In some cases you can elect to have interest paid into your bank account each month, but the downside of this is these term deposits usually have a lower interest rate. It can therefore be beneficial to have a longer term with a higher interest rate, paid all at once at the end of the term (maturity).
Check out this comparison below to help you decide.
Interest paid monthly vs interest paid at maturity
So what’s the difference? In some cases you can elect to have interest paid into your bank account each month, but the downside of this is these term deposits usually have a lower interest rate. It can therefore be beneficial to have a longer term with a higher interest rate, paid all at once at the end of the term (maturity).
Check out this comparison below to help you decide.
| 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
As noted previously, term deposit interest payment dates can vary, with some accounts only paying at maturity. However, if you opt for monthly payments, you usually have two choices:
- Direct deposit to your bank account: This can be good for monthly budgeting as it gives you a regular income source without waiting for the term to end.
- Reinvestment into your term deposit: Once your term deposit reaches maturity, you can choose to have it reinvested into a new term.
Will monthly compound interest make my term deposit worth more?
Most term deposits have simple interest, where interest is only calculated on the initial deposit, which is paid out at maturity.
As we touched on earlier, in some cases you can choose for your interest to be paid into your bank account at regular intervals (e.g. monthly, quarterly or annually), but most providers have lower rates on term deposits that pay regularly in this way.
Banks also tend to adjust their rates so that there’s minimal difference between a term deposit with monthly interest earned and one that pays the interest at maturity of say, 12 months.
Consider the below example:
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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?
The frequency of interest payments on your term deposit – whether monthly or at maturity–usually won't make or break your savings strategy. There's no universally ‘best’ option - it depends on your individual financial needs and goals.
The key is to compare various term deposit options of the same length term, their rates and potential fees, and align them with your specific saving objectives.
Top term deposit tips
Here are a few extra ways to give your term deposit a boost:
- 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, be sure to research this before locking in).
- Know your savings goals: 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.
* 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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