Types of Term Deposits
Before you make the decision that a term deposit is for you, it’s worth comparing not only the interest rates and deals on offer, but also the type of term deposits available, so you can find one to suit your budget and lifestyle.
We’ve broken down the different kinds of term deposits commonly on offer to help you decide.
Short term deposits
What is it: A term deposit lasting anywhere from 1 to 12 months.
Who is it good for: People with short term savings goals or who aren’t willing to lock their savings away for years at a time.
Are there any catches: Generally speaking, shorter term deposits don’t offer interest rates as high as those on long terms.
Top tip: Try opting for a short term deposit with a rollover option. That way, you’ll have the opportunity to withdraw - or deposit - more funds when the original term runs out, but you also have the option to extend and save for longer. Just make sure you check the rollover rate is still competitive!
Check out our full guide to short term deposits here.
Long term deposits
What is it: A term deposit lasting from 1 year up to 10.
Who is it good for: Savers with long term goals, or those who have a lump sum - maybe a Christmas bonus or inheritance - that they won’t need in their regular budget. Long term deposits are also great for retirees who are looking for a low risk investment strategy.
Are there any catches: You have to plan long term - your money will be practically untouchable for years at a time, and that can make unexpected emergencies a big issue!
Top tip: Look around and secure a competitive interest rate before locking into a long term deposit - you’ll be stuck with it a while.
Find our full guide to long term deposits here.
Advance notice term deposits
What is it: A term deposit that requires you to give at least 31 days notice before you withdraw early. This has become more and more common and typically offers higher interest rates.
Who is it good for: If you think you’ll wind up making an early withdrawal for unnecessary spending, this waiting period could be long enough to make you change your mind and save you from heavy penalties.
Are there any catches: An advance notice term deposit will delay you getting your hands on your cash in the case of an emergency.
Top tip: If your term deposit would mature before the 30 days notice period anyway, then don’t apply for early withdrawal. You’ll still have to wait for the maturity date, plus you’ll be charged the early withdrawal fees anyway.
No notice term deposits
What is it: Less common nowadays, are term deposits that don’t require any notice period before you’re able to make early withdrawals.
Who is it good for: This is a good option if you want the flexibility to access your funds without waiting the typical 31 days. So if an emergency does occur you'll be able to get your hands on your money without a notice period. That being said, if you're expecting to access your funds in a hurry, you might be better off opting for a savings account anyway.
Are there any catches: Although it’s not a hard and fast rule, generally, you’ll wind up with a lower interest rate if you opt to avoid the advance notice period on your term deposit.
Top tip: It’s always a good idea to have a separate emergency fund - maybe in a high interest savings account - so you won’t need to suddenly withdraw early from your term deposit. That way, you won’t even need to opt for a no notice period and instead grab an advance notice term deposit with a higher interest rates.
Interest paid monthly term deposits
What is it: Although term deposits are mainly paid either annually or at maturity, some deals offer the option of having interest paid monthly. The best part about it is the compounding effect - your interest will start to earn interest.
Who is it good for: Although you still can’t get your hands on the monthly interest until the end of the term, savers with short attention spans might stay motivated by seeing interest roll into their account each month!
Are there any catches: Usually, if you choose to have your interest paid monthly, the bank will give you a lower interest rate, which means the compounding effect of frequent interest payments may not matter all that much in the long run.
Top tip: Maximise your balance when you make the initial deposit - the larger the balance, generally, the more interest you’ll earn on it.
*Based on Commbank rates, accurate as of 21/6/16. Should be used as a guide only. Find today’s rates here.
Low balance term deposits
What is it: All term deposits require a minimum balance to get started - and sometimes, they can be pretty high. A low balance term deposit is one that has a required minimum balance of $1,000 or below, or no minimum at all.
Who is it good for: Savers who don’t have a heap of cash to lock away, or those who’d prefer to have multiple smaller term deposits.
Are there any catches: The lower the balance, generally the lower the interest it accrues. Check out our term deposit calculator to work out what different balances will mean for your interest earning power.
Top tip: If your strategy is to opt for multiple term deposits with smaller balances, stagger the maturity dates, so each term ends at a different time. That way, you’ll get your savings back bit-by-bit, like a paycheck from yourself! This can be a great plan for retirees who are living off their savings and need to keep their spending under control.
Ok, so it’s not exactly a term deposit, but a savings account is like the term deposit’s cousin - and it might be the right option for you. Check out our guide on savings accounts vs term deposits for a full rundown, or check out the basics below.
What is it: A place to stash your cash so it’s harder to get to than in a bank account, but easier than a term deposit.
Who is it good for: Savers who may need access to funds in the near future, whether it's to withdraw or deposit.
Are there any catches: If you aren’t so good with savings discipline, it's a lot easier to spend the money in a savings account than it is a term deposit.
Top tip: Make sure you qualify for bonus interest offers! Requirements might include making no withdrawals or minimum deposits in a month - try setting up automatic payments to make the later easier.
What is it: A savings account where you need to give a certain notice period before withdrawing (often 30 or 90 days). Think of it as a blend of savings account and term deposit.
Who is it good for: Savers who may need access to their funds, but have a problem with impulse spending. The notice period ensures you won’t be drawing on your rainy day fund for passing wants.
Are there any catches: Notice accounts, and savings accounts in general, have variable rates. That means your interest might be affected by rate drops in the market in a way it wouldn’t be with a term deposit.
Top tip: The great thing about this is that while the money is harder for you to spend, it’s easy to make deposits into a notice saver account - so plump up your balance regularly!
Things to think about when choosing a term deposit
Here are a few things to keep in mind when you choose a term deposit.
Savings goals - are you saving for a short term or long term goal? This will determine which term is best for you.
Savings habits - do you want to make regular deposits? If so, a savings account might be a better choice for you.
Your budget - will your monthly budget allow you to lock those funds away? Make sure you still have enough in the coffers to pay for everyday essentials, like groceries and rent.
The interest rate - you’re stuck with the one you choose until the term runs out, which can be a good thing if you choose wisely, or a real pain if you haven’t done enough research and picked a competitive deal.
Find a term deposit
Have you picked the best kind of term deposit for you yet? If you need more info before going ahead, check out the rest of our term deposit guides. Or if you’re ready and raring to go, head over to our term deposit comparison page to find some of the best deals on the market today.