Term deposits

How to find the best term deposit for you

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Term deposits can be useful when you want to be certain about the interest you'll earn.

How term deposits work

Term deposits are a way to invest your money in a bank account held with an authorised deposit-taking institution (ADI), for a set amount of time and get a fixed interest rate. They can be useful when saving for bigger items like a car or investing when you want to be certain about the interest you'll earn.

Your money is locked away for the time that you choose (the term), usually between one month and five years. You need a minimum amount to open a term deposit, for example, $5,000.

If you want to save but might need quick access to your money, a savings account could be better.

Advantages of term deposits

Higher interest rates

Term deposits offer a higher interest rate than most transaction and saving accounts. Generally, the more money you put in, or the longer you invest, the higher the interest rate.

Protected by the Financial Claims Scheme

The Financial Claims Scheme (FCS) is an Australian Government scheme that protects deposits made with Australian banks, building societies and credit unions. It guarantees to pay you up to $250,000 to replace deposits in the unlikely event your bank, credit union or building society fails. The safety net only applies to accounts held with authorised deposit taking institutions (ADIs) regulated by APRA. You can check the list of ADIs covered.

Linked account

Most term deposits have no set-up or account fees. However, some providers may pay your interest into a linked transaction account. Check if there are any account fees on the transaction account. Also ask if they can pay the interest into an account you already have.

Disadvantages of term deposits

Early withdrawal penalties

To earn interest on your term deposit, your money is locked away for a chosen period of time. If you need your money before the term ends, you may have to pay a penalty fee. You may only receive a proportion of the interest earnt, or none at all. You may also need to give up to 31 days' notice. Check the terms and conditions.

Be wary of term deposit scams

Scammers are offering fake term deposits and investments advertised to be 'like a term deposit' that claims to be a 'new breed of investment'. Look out for:

Offers claiming to 'beat inflation'.
Interest rates that are higher than other alternatives.
Guaranteed high returns.
Someone contacting you 'out of the blue' with an offer to invest.
Requests for copies of your identity documents or personal details from someone offering to set up a term deposit with a bank.
Where you are asked to transfer your funds - to open a legitimate term deposit, you will never be asked to transfer funds to a different bank than the supposed provider of the term deposit.

Read more about the signs of suspicious bank account or transfer details.

Choosing a term deposit

Compare the features of term deposits

Always shop around for the highest interest rate and best features before you choose a term deposit. Be sure to compare products across different financial institutions. It's important to check:

Interest rate	what the interest rate is when interest is paid — monthly, annually or at maturity
Time frame	how long you can invest for how interest rates change with different investment time frames
Amount invested	how much you need to open a term deposit how the interest rate changes the more you invest
Fees	if there are any set-up or account fees how big the penalty fee is if you need your money early

How to check it's a term deposit

Term deposits can only be issued by a bank, credit union or building society listed by APRA as an ADI. If the ADI is not on APRA’s list, then it’s not a term deposit and it will not be covered by the financial claims scheme.

Some legitimate managed funds can have investment products with the look and feel of a term deposit, but these are much higher risk. Check with the ADI to make sure it’s a term deposit.

Comparison websites can be useful to compare products, but they are businesses and may make money through promoted links. They may not cover all your options. See what to keep in mind when using comparison websites.

When your term deposit matures

Term deposits are not a 'set and forget' investment. When your term deposit matures, your provider will contact you. They'll tell you how much interest you've earned and what your options are.

If you do nothing, your term deposit may roll over into a new term deposit. There may be a fee to get your money out of the new term deposit. It could also have a lower interest rate than before.

Review your term deposit a month before it matures. Compare it with other products to make sure you're getting the best deal.