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Your guide to term deposit

woman with a cute dog thinking about term deposits

If you’re considering a term deposit as a savings strategy, you probably want to earn high interest for your lump sum savings and invest in a secure and safe manner.

We’ve collected the need-to-know details on term deposit interest rates below to help you find an interest rate that will work wonders for your savings.

What is a term deposit?

A term deposit is like a cross between a savings account and a steel trap - it’s a safe place to stash your money while it earns interest, and once the money goes in, it’s not so easy to get out. 

You’ll pay heavy penalties if you want to withdraw before the term is up, but the tradeoff is that whenever your money is in the term deposit, it will keep earning interest at a fixed rate, no matter what the market does.

What types of term deposits are there?

When you start your search for a term deposit, you should get familiar with the different kinds of term deposits, as the type you choose could affect how low or high your interest rate is. Here’s a quick runthrough:

Short term

Generally, short term deposits, which range from 1 month to a year, offer lower interest rates than longer terms. If you’re opting for a short term, make sure you shop around and get the best possible deal.

It’s also a good idea to compare the interest rates on offer with those of the top saving accounts, which might even be more competitive.

Long term

Long term deposits, which can last up to 5 years, on the other hand, come with better interest rates attached, mostly because once the banks have your money, they’d like to keep it for as long as possible.

No notice

They’re less common nowadays, but some banks still offer term deposits that don’t require any notice period before you make an early withdrawal. The catch is that for this added convenience, you’ll usually wind up with a lower interest rate.

Advance notice

A term deposit that requires 31 days notice before you can make an early withdrawal is now a pretty common setup. In return for this loss of flexibility, you’ll usually get higher interest rates in comparison to a term deposit without this notice period.

What happens when market interest rates change?

Because a term deposit has a fixed interest rate, changes in the market won’t affect the return your savings stash earns over the fixed term.

This can be a real boon if market interest rates are falling, but you may not be so happy about it if rates everywhere are on the rise, and yours is standing still!

Make sure to check who are the term deposit leaders before committing to one.

What does an ‘interest rate adjustment’ mean?

When you withdraw from your term deposit early, you’ll have to pay a penalty fee and the bank can also reduce your interest rate. This reduction is called an interest rate adjustment, and will be calculated on the length of time you have left until the term deposit matures. The earlier you make a withdrawal, the bigger the reduction in your interest rate. 

So be sure you won't need that money later down the track before you lock it away in a term deposit.

How will the interest from a term deposit be paid?

These days, term deposit interest is pretty much universally paid via directly into an account of your choice.

Remember that if your regular bank is a bit of a slouch on the term deposit front and you decide to look elsewhere for a place to lock away your stash, you need to check that the term deposit offer you opt for includes the option to have interest paid into your regular bank account. Some don’t, and instead require you to have a term deposit and bank account at the same institution - which can be a hassle if you don’t plan on switching banks entirely.

How often does a term deposit pay interest?

The most common options are at maturity for shorter terms, or annually for terms lasting a number of years. Some term deposits also come with the option to have interest paid monthly or even every six months.

If you think monthly interest payments will score you extra dollars thanks to compound interest, then you’ll be disappointed. Interest rates can differ depending on the payment frequency you choose - term deposits that pay monthly generally have slightly lower rates - so there probably won’t be a big difference in how much interest you earn anyway.

What happens when a term deposit matures?

At the end of your term, your term deposit reaches maturity, and you can choose to either withdraw your money - interest included - or to re-invest in a new term deposit. Your bank will notify you when your term deposit is close to maturing, and you’ll need to let them know what course of action you want to take. If you don’t, your money will often rollover into another term.

If you choose to deposit your money for another term, make sure you check the offers available on the market, to be sure you’re still getting the best value.

How can I find the best term deposit interest rate?

Now you’ve got the background knowledge, the next step is finding the best term deposit interest rate available on the market. It’s well worth doing your research at this point and finding the best deal available, because isn’t earning the most interest possible what a term deposit is all about?

Here are a few tools to get you on your way to growing your saving pile with a competitive term deposit interest rate:

  • Term deposits comparison - find some of the best term deposit deals on the market and compare interest rates to find the best one.
  • Term deposits calculator - crunch the numbers on your savings and work out what different terms, deposit amounts or interest rates could mean for your earning potential.
  • Term deposits search - want to narrow your options down? Our term deposit search tool is designed to show you the best offers that apply to your personal savings situation.
  • Mozo Experts Choice Award Term Deposit winners - don't want to do too much researching? Well, we've narrowed some of the best term deposits in our database and gave them awards based on how amazing they are. 

Term Deposit Comparison Table - last updated 15 April 2024

Search promoted term deposits below or do a full Mozo database search. Advertiser disclosure
  • Mozo Expert Choice Badge
    Term Deposit

    4.75% p.a.
    1 year

    $1,000

    Yes up to $250,000

    Enjoy a competitive fixed interest with the choice of 1 month to 5 year terms. Start with as little as $1,000. Interest paid monthly, quarterly, half yearly or yearly. Receive a 0.10% loyalty bonus when you automatically reinvest your Term Deposit before maturity. (Terms and Conditions apply)

    Compare
    Details
  • Term Deposit

    4.80% p.a.
    9 months

    $1,000

    Yes up to $250,000

    Enjoy the certainty of a fixed interest rate combined with the convenience of online banking to set up and manage your term deposit at maturity. You can start investing from as little as $1,000 or up to $5,000,000.

    Compare
    Details
  • Mozo Expert Choice Badge
    Term Deposit

    4.85% p.a.
    6 months

    $1,000

    Yes up to $250,000

    Enjoy a competitive fixed interest with the choice of 1 month to 5 year terms. Start with as little as $1,000. Interest paid monthly, quarterly, half yearly or yearly. Receive a 0.10% loyalty bonus when you automatically reinvest your Term Deposit before maturity. (Terms and Conditions apply)

    Compare
    Details
  • Online Term Deposit

    4.85% p.a.
    9 months

    $5,000

    Yes up to $250,000

    No set-up or account keeping fees. Deposits up to $250,000 per customer are guaranteed by the Australian Government. Mozo Experts Choice winner for Term Deposit 2022.

    Compare
    Details
Maria Gil
Maria Gil
Money writer

Maria Gil writes across all of our personal finance areas here at Mozo. Her goal is to help you think smarter about money and have more in your pocket. Maria earned a journalism degree in Florida in the United States, where she has contributed to major news outlets such as The Miami Herald. She also completed a masters of digital communications at the University of Sydney. When Maria isn’t busy with all things finance, you can find her tucked away reading fantasy books. She is also ASIC RG146 (Tier 2) certified for general advice.

* 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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