Looking for a safe, long-term, set-and-forget option for your cash? A 5-year term deposit is a great option.
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If you're looking for a secure, long-term investment option with a guaranteed return, a 5-year term deposit could be the perfect solution. You can compare 5 year (60-month) term deposit options below.
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Secure a fixed interest rate and guaranteed returns for five years.
Small interest rate differences greatly impact your total earnings over the long term.
Expect penalties like lost interest if you need to withdraw funds early.
How do 5-year term deposits work?
A 5 year term deposit offers a fixed interest rate when you lock your money away for 5 years (60 months). This is the longest timeframe offered with a term deposit.
A 5-year term deposit offers the security of a fixed interest rate and provides guaranteed returns on your investment. They offer protection against any interest rate cuts that may occur. However, you also risk missing out on any interest rate rises that happen uding the 5 year term.
Unlike a savings account, term deposits are set up so that you can't access the funds in your account without giving 31 days notice, payig a fee and/or losing your interest. This removes the temptation to dip into your savings on a whim.
How does interest work on a 5-year term deposit?
With a term deposit, you invest your money for a set period – in this case, 5 years – and earn a fixed interest rate during that time. Interest can be paid monthly, quarterly, half-yearly, yearly or when the deposit matures. The interest rate is guaranteed not to change for the life of the deposit.
The interest rate on a term deposit remains the same until your account matures, which means you are protected against interest rate falls but you can't take advantage of any rises that may occur. So if you think interest rates are unlikely to increase at any time in the next 5 years, investing in a 5-year term deposit could be a good idea. Once the deposit matures at the end of the 5-year period, you can either withdraw your funds or roll them over into a new term deposit.
Banks and other financial institutions across Australia offer term deposits. There is plenty of competition in terms of interest rates and it could be worth your while to shop around for the account that offers the best deal.
Our expert says: What to consider before committing to a 5 year term deposit
"5 years is a long time to lock your money away - and depending on what you're looking for, this could be a blessing or a curse. If you're simply looking for a safe and secure, low risk way to get a return on your cash and want a set-and-forget option it could suit you.
However, if you're not 100% confident that you won't need to access the money for 5 years it's probably worth choosing a shorter term length instead. If you did find yourself with an unexpected, large expense it's very difficult to access the money."
High interest rates. Some banks offer higher rates for longer terms.
Fixed interest rate. You'll know exactly what interest rate you'll earn the whole 5 years, even if rates in the market go down.
Guaranteed returns. You know exactly how much interest you will earn, making it easy to plan for your investment.
Money is locked away. There is no temptation to dip into your savings balance and make impulse purchases. because you can't access the money.
Option of term lengths. If a 5 year term doesn't suit you, most banks offer a range of term lengths from 3 months to 5 years.
Interest payment options. because 5 years is a long time, most banks will let you choose if you want to receive interest payments quarterly or annually instead of waiting until maturity.
Cons
Rates won't rise. 5 years is a long time and if rates go up while your funds are locked away, you won't be able to invest your funds at a higher rate until your deposit matures.
Can't access funds. It's impossible to gain quick access to the money you have invested in a term deposit. You need to give at least 31 days' notice and may incur substantial fees.
Why is it important to find the best 5-year term deposit rate?
The interest rates available on 5-year term deposits vary from one bank to the next. While there might not seem to be a huge difference in many of these interest rates, it's worth your while to find the highest interest rate you can. Take a look at the following fictional example:
As a make-believe example, let's pretend 32-year-old tradie Steve wants to invest $10,000 in a 5-year term deposit. Let's say when he compares the accounts available from the 2 banks of which he is already a customer, Steve discovers a slight difference in the interest rates on offer – Bank A offers 2.75% p.a. while Bank B offers 3.25% p.a. Both accounts pay interest monthly, so Steve compares the accounts to see just how much difference a higher rate will make to his end balance.
As you can see, even though the interest rate from Bank B is only 0.50% p.a. higher, this works out to be a difference of $289.69 at the end of the investment term.
* This is a fictional, but realistic, example.
Bank A
Bank B
Interest rate
2.75% p.a.
3.25% p.a.
Investment term
5 years
5 years
Interest paid
Monthly
Monthly
Balance after 5 years
$11,472.21
$11,761.90
Total interest paid
$1,472.21
$1,761.90
How do I compare 5-year term deposits?
Make sure to keep the following features in mind when comparing the benefits of 5-year term deposits:
Interest rate. Interest rates vary between banks, so it's important to shop around for the account that allows you to earn the highest rate of interest on your deposit. Even a small difference in interest rates can make a substantial difference to your balance at the end of a 5-year investment term. Don't hesitate to compare all your options.
Frequency of interest payments. Check to see when your account will pay interest – monthly, quarterly, half-yearly, annually or at maturity – and what effect this will have on your balance at the end of 5 years.
Fees. Make sure you're aware of any fees that apply to your account, such as ongoing account-keeping fees. There are many term deposit accounts out there that don’t charge any ongoing fees, so keep an eye out for any other charges.
Loyalty bonuses. Some banks provide a loyalty bonus if, when your term deposit matures, you decide to roll over your balance into another term deposit. This loyalty reward usually takes the form of a bonus interest rate on your account.
Linked account requirements. If you want to open a term deposit, some banks will also require you to open a linked account from which you can transfer funds to your term deposit. If this is the case, make sure you're aware of any fees that apply to this account.
Minimum balance requirements. Most banks impose a minimum deposit requirement on their term deposit accounts. This typically ranges from $1,000 to $10,000 or even higher, which means some accounts may not be suitable for your circumstances.
What happens when the deposit matures. Some banks will automatically roll your funds over into a new term deposit when your account matures. Make sure you're aware of what will happen to your funds at the end of the investment term so that you can take control of your finances.
A 5-year term deposit provides a safe and reliable long-term investment option. Compare 5-year term deposit accounts at Finder and find the right account to help you save towards your financial goals.
Frequently asked questions
Early withdrawals are possible but usually come with penalties, such as reduced interest or a fee.
Interest is typically paid either monthly, annually, or at the end of the term, depending on the specific terms of the deposit.
Yes, they are generally low-risk, with your initial deposit and interest guaranteed, often up to a certain limit by the government.
Tim Falk is a writer for Finder, writing across a diverse range of topics. Over the course of his 20-year writing career, Tim has reported on everything from travel and personal finance to pets and TV soap operas. When he’s not staring at his computer, you can usually find him exploring the great outdoors.
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