Can you withdraw a term deposit before maturity?

For anyone who’s looking to grow their savings, term deposits can be a risk-free and reliable option. Nominate an amount of money and how long you’d like to lock it away, and a nice little stack of interest will be waiting for you once that time is up.

But sometimes circumstances change, and at some point you might decide you urgently need those funds back.

While banks won’t prevent you from closing a term deposit early, they don’t necessarily make it easy. So if you’re thinking about making an early withdrawal on a term deposit, here are the conditions and penalties that may apply. 

If you intend to withdraw all or part of your funds early, you’ll generally need to provide at least 31 days’ notice to your bank. Some won’t allow you to do this online, so you’ll need to either chat with a representative over the phone or visit a branch.

If you’re only withdrawing a portion of your funds prior to the maturity date, keep in mind that what’s left over can’t drop below the minimum deposit amount.

And if there are less than 31 days left on your term, the earliest you can access it is at maturity – unless things are absolutely dire, you’ll just have to be patient.

Lodging your money with a bank for a pre-specified amount of time allows them to finance things like home loans, credit cards and personal loans, so they generally don’t want customers drawing from term deposits prematurely.

Backing out inconveniences them in a pretty big way, so you’ll likely be slapped with a few penalties. These could include:

• Early withdrawal penalty / administration fee
• Interest rate adjustment

The administration fee for breaking a term deposit early is usually a flat fee of around $30.

Along with that, there will be an adjustment to the amount of interest you can expect to receive. For example, a reduction structure might look something like this: 

Let’s put that into perspective. Imagine you’ve got $100,000 in a 12 month term deposit that's offering an interest rate of 0.70% p.a. which will be paid out at maturity. If you decide after just five months that you need that money back in your hands, you can expect a few adjustments to be made.

First of all, in this scenario you’ll need to provide 31 days’ notice, so the interest rate adjustment will take into account the extra month that will have elapsed by the time you receive your money. With that in mind, the calculations will look something like this.

The amount of interest accrued after six months (let’s say 181 days)

• $100,000 x 0.70% x 181 / 365 = $347.12

Interest rate adjustment

• 50% of the term remains, which means a 60% deduction will apply
• 60% of $347.12 = $208.27
• $347.12 - $208.27 = $138.85

In the above scenario, you’ll walk away with only $138.85 (along with the $100,000 you initially deposited, of course). And if your bank charges a prepayment administration fee, you’ll be looking at even less. So no matter when you terminate your term deposit, you stand to lose out on a good chunk of interest.

Things get a bit more complicated if interest has been paid out in the interim (many term deposits of one year or more pay out interest monthly). In this case, it might need to be recovered by the bank to account for the interest rate adjustment.

Despite all this, banks do tend to be more lenient in certain circumstances, such as if you’re experiencing extreme hardship. If that’s the case, you’ll generally receive your deposit back in full, plus all the interest that’s been accrued in the time since. The same goes if the account holder of the term deposit passes away.

Ideally, you want to keep a term deposit for the full duration of the term. Having to close it early means you’ll only reap a portion of the benefits. Here are a few things you can do to avoid finding yourself in that position in the first place.

Keep a separate emergency fund

Regardless of your current circumstances, it’s always a good idea to have an emergency savings fund in case life takes an unexpected turn for the worse. Things like medical emergencies, redundancy, and evictions can hit at any time, and it’s generally advised to have at least three months’ worth of expenses set aside to help cushion the blow. 

Opt for shorter terms

Long term deposits (terms of one year or more) are a pretty big commitment, so if you’re someone who tends to move money around frequently it might be best to avoid them altogether. The key, then, is to find the sweet middle ground in which you’re getting an attractive rate from your term deposit while not committing to a length that’s too much for you. Right there are several shorter term deposits starting with a '3' which might work for you. 

If you’d like to compare term deposits, you might want to check out the selection below, or browse our term deposits comparison page for an even more comprehensive look. And if you feel that a savings account would suit you better, there are plenty to consider over at our high interest savings accounts comparison page.