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What are term deposits?

what is a term deposit

Are you looking for a place to stash your cash besides a savings account? A term deposit is another popular option that lets you lock your cash up for an agreed time, leaving it inaccessible until the term ends. In return, you get the security of a fixed rate, so you know exactly what interest you’ll have when you eventually can reclaim the funds.

Features of a term deposit

A term deposit is a long-term investment option designed to provide a stable return. 

Its features include:

  • A fixed interest rate - When you open a term deposit, you'll secure a rate that remains constant for the entire term. This protects your earnings if market rates drop, but may be disadvantageous if rates rise.
  • Flexible terms - You can choose investment periods ranging from one month to five years. Longer terms generally offer higher interest rates, though not always.
  • Rollover options - Some banks allow you to reinvest your savings immediately when one term ends. Always verify that the rollover rate remains competitive in the current market.
  • No fees, but withdrawal penalties - Term deposits typically don't incur regular fees, but early withdrawals often result in penalties. It's best to avoid withdrawing funds before the term matures.

Who offers term deposits?

Most financial institutions offer term deposits, so you could probably get one with the same bank where you have a savings account, credit card or home loan

However you might not get the best deal that way as you should compare the term deposits on offer from a number of different providers—that way, you’ll be able to find a great interest rate. 

Is a term deposit right for me?

Term deposits can be great provided they are used for the right purpose. Some things to keep in mind when considering a term deposit include: 

  • Your financial goals - are they long term or short term? If you’re saving to put down a home loan deposit or just want to grow your savings in a predictable way, then a term deposit might be a good solution. On the other hand, if you’re saving money so you can go shopping on the weekend, a long-term arrangement like a term deposit is probably not the best option for you. 
  • Your money habits - term deposits are best for funds you won't need to access for a while. If you frequently use your savings or make regular deposits, consider an everyday transaction account or a high-interest savings account instead. Term deposits are ideal for lump sums you can set aside for a fixed period.
  • The market - you should keep an eye on what’s happening with RBA and interest rates before choosing a term deposit. In a falling interest rate environment, for example, locking in a rate can protect your savings. However, if rates are rising, a fixed-rate term deposit might mean missing out on better rates later.

How to apply for a term deposit

If you’ve decided a term deposit is right for you, the next move is to apply for one. The first step should be to find the best term deposit offer you can find. Then, you can set up the term deposit online or at a branch. 

When you start the process, you’ll need:

  • Your bank details
  • Your tax file number
  • Identification - usually photo I.D, like a driver’s licence is best
  • And your personal contact details.

The bottom line…

Term deposits offer a low-risk, low-maintenance way to earn returns on savings and can help maintain savings goals. However, funds are inaccessible until maturity. For those needing frequent access to their money, a high interest savings account may be more suitable.

If you’re ready to start comparing, check out some of the term deposit providers on our hub page.

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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