What are term deposits?

Looking for a secure way to grow your savings beyond a standard savings account? Term deposits offer a dependable option that lets you lock away your money for an agreed period in exchange for a guaranteed return. This comprehensive guide will help you understand how term deposits work and whether they're the right choice for your financial goals.

A term deposit is a way locking away your savings for a fixed period where, in return, you'll receive a guaranteed interest rate that won't change during the term. This makes term deposits an excellent choice for those seeking a predictable return on their savings.

Term deposits come with a couple of different features that make them fairly distinct in comparison to savings accounts. 

These include … 

Fixed interest rate

When you open a term deposit, you'll secure an interest rate that remains unchanged throughout your chosen term. This offers protection against falling market rates, though it means you won't benefit if rates rise during your term.

Flexible terms

You can choose from various periods ranging from one month to five years depending on the provider. Generally, opting for longer terms tends to offer more favourable interest rates, though this isn’t always the case. It's important to select the term that best aligns with your timeline and financial goals.

Rollover options

A lot of providers offer automatic reinvestment when your term ends. However, it is important to review the rollover rate as it may have fallen since signing up. To make sure you’re getting the best rates available, you may want to set a calendar reminder to compare rates before your term deposit matures. This proactive approach can help you maximise your returns.

Fees and penalties

When considering financial options, it's important to note that there are no regular account-keeping fees associated with this account. However, be aware that early withdrawal penalties may apply if you access your funds before the maturity date. To avoid any surprises, always read the terms and conditions regarding early access to your money.

While it might seem convenient to open a term deposit with your existing bank, shopping around could secure you a better rate. Different providers often compete for your cash by offering higher interest rates.

You'll find term deposits available from:

• Traditional banks
• Credit unions 
• Mutual banks

Term deposits can be a good choice for medium to long-term financial goals, offering a safe way to grow your savings. It’s for that reason that if you're saving for a home deposit, building a secure nest egg, or seeking predictable returns, they can be worth considering as part of your strategy. 

Here are some things to keep in mind so you can figure out whether a term deposit is right for you.  

Your money habits

How you typically manage your money can affect whether a term deposit is right for you. You should consider things like:

• If you need regular access to your savings
• Want to make frequent deposits
• Require flexibility with your money
• How comfortable you are with having limited access to your funds.

Current market trends

Keeping current market trends in mind can be helpful when deciding between different savings vehicles. Keep some of these trends in mind:

• Current Reserve Bank of Australia (RBA) cash rate trends
• Whether interest rates are expected to rise or fall
• How different terms might affect your potential returns.

The process of opening a term deposit is straightforward, but it's important to take your time with each step so that you get the best possible outcome for your savings.

Research and compare

Before you commit to a term deposit, take time to research your options thoroughly. Comparing interest rates across different providers is one way. While your current bank might be convenient, other institutions may provide better rates. 

One thing to consider is how different terms and investment amounts might affect how much you end up with. Another consideration is to carefully review the terms and conditions, paying particular attention to early withdrawal policies and minimum deposit requirements (which can vary anywhere from $0 to $25,000).

Prepare your documentation

Getting your paperwork in order before you apply will help make the process smooth and efficient. You'll need several essential documents including:

• Photo identification (such as your driver's licence or passport)
• Tax File Number
• Your bank account details
• Current contact information

Some providers might also request proof of address, so having a recent utility bill or similar document on hand can be helpful.

Completing your application

Once you've chosen your provider and gathered your documentation, you're ready to open your term deposit.

Most financial institutions offer several ways to complete your application: 

• You can apply online through the provider's website.
• If you prefer face-to-face service, visit a local branch.
• Some providers also offer phone applications, though this service isn't universal.

The bottom line

Term deposits offer a fixed interest, low maintenance way to earn and save your cash. While they might not always provide the highest rates or the flexibility of a savings account, they can be an excellent tool when used in the right way.

Ready to explore your options? Start by comparing term deposits on our hub page and check out what rates providers are offering.