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Long-term deposits versus short-term deposits

You love your cash and have worked hard for it, so why would you want to lock it away?

Saving for a house, holiday, car or simply a rainy day can be tough, especially when your cash is so readily available. We can now spend our cash more effortlessly than ever before. And thanks to new tools like PayPass and Apple Pay, we don’t even need to visit an ATM. A term deposit could be an ideal investment option for you as it takes your cash and locks it away.

ME Term Deposit

Term Deposit Offer

The ME Term Deposit offers a competitive interest rate with $0 setup and account keeping fees.

  • Minimum investment amount: $1,000
  • Terms from 1 month to 5 years
  • Choose when you receive interest payments
    Rates last updated April 26th, 2017
    3 Mths p.a. 4 Mths p.a. 6 Mths p.a. 12 Mths p.a. 24 Mths p.a. 36 Mths p.a. 48 Mths p.a. 60 Mths p.a. Min Deposit Interest Earned
    ME Term Deposit
    ME Term Deposit
    2.50% 2.50% 2.70% 2.85% 3.00% 3.00% 3.00% 3.00% $1,000 Go to site More
    St.George Term Deposit
    St.George Term Deposit
    2.10% 2.00% 2.20% 2.55% 2.60% 3.20% 2.80% 2.95% $1,000 Go to site More
    Citibank Term Deposit $75,000
    Citibank Term Deposit $75,000
    2.50% 2.50% 2.80% 2.35% 2.35% 2.35% 2.35% 2.35% $75,000 Go to site More
    Citibank Term Deposit $250,000
    Citibank Term Deposit $250,000
    - - 3.00% - - - - - $250,000 Go to site More
    BankSA Term Deposit
    BankSA Term Deposit
    2.10% 2.00% 2.20% 2.55% 2.60% 3.20% 2.80% 2.95% $1,000 Go to site More
    Bank of Melbourne Term Deposit
    Bank of Melbourne Term Deposit
    2.10% 2.00% 2.20% 2.55% 2.60% 3.20% 2.80% 2.95% $1,000 Go to site More
    Bankwest Online Term Deposit
    Bankwest Online Term Deposit
    2.35% 1.50% 2.55% 2.60% 2.60% 2.60% 2.65% 2.65% $1,000 Go to site More
    Firstmac Term Deposit
    Firstmac Term Deposit
    2.75% - 2.75% 2.85% 2.75% - - - $5,000 Go to site More
    RaboDirect Term Deposit
    RaboDirect Term Deposit
    2.40% - 2.55% 2.60% 2.90% 3.00% 3.05% 3.30% $1,000 Go to site More

    What is a term deposit?

    A term deposit is a relatively risk-free investment option that enables you to invest your money for a set period of time, allowing your balance to grow by accumulating interest. You determine the amount of money you deposit and the length of the term when you open the account. You can deposit anywhere from $1000 to $100,000 for several months or years at a time.

    Depending on which account you choose, you will earn a fixed-interest rate on your money either monthly, yearly or when the term is over. Unlike other investments, thanks to the fixed-interest rate, your investment will be immune to fluctuations in the market.

    It is important to remember that you cannot access your money until the full term is over. Some lenders may allow you to do so, but you will pay a hefty fee or forfeit all the interest you’ve earned.

    Key term deposit definitions

    Length of term

    This refers to the amount of time the bank will hold your money in the account. You decide on the length of the term when you open the account.

    Variable rate

    This means the interest rate can change at any time. It can go up (meaning you will earn more interest) or down (meaning you will earn less interest).

    Fixed rate

    This means the interest rate at the time you open the account will stay the same for the full length of your term. Term deposits always have a fixed-interest rate.


    This is the initial amount of money you wish to hold in the term deposit.

    Auto rollover

    If your term deposit has this feature, your money will roll into another account when the term is over.


    This refers to the end of your term. When the term is over, your account has reached maturity.

    Why choose a term deposit over a savings account?

    There are several differences between a savings account and a term deposit. The primary difference comes down to your ability to access your money. With a savings account, you can but with a term deposit, you can’t. A term deposit is a good option for people who want to save, but keep finding themselves tapping into their savings account for day-to-day items. A term deposit forces you to save that money because you can’t access it.

    Another major benefit of a term deposit is the fixed-interest rate. Most savings accounts have a variable interest rate, meaning they can change at any time.Therefore, if you’re enjoying a fixed-interest rate of 3% on your term deposit and the lender lowers their interest rates, your term deposit won’t be affected but your savings account may be. However, this also works the other way, but it’s the risk you take!

    The difference between short- and long-term deposits

    So you’re sold on the idea of a term deposit, but how long do you want to stash your cash?

    Long-term deposit

    A long-term deposit usually means a term that is over 12 months in length. The main advantage to long-term deposits is they generally have a better interest rate. Typically, the longer amount of time you commit to, the better rate you will receive from the lender. This is a reward for letting them hold onto your money for a long period of time. Long-term deposits require less maintenance as they allow you to set and forget, which is a quality many people look for in an investment.

    Short-term deposit

    Deposits that are locked in for 1-12 months are usually considered short term. The benefit of short-term deposits is, as the name suggests, they are short term. Many people will not be comfortable knowing they cannot access that money for several years. If you end up with a large unexpected cost, and the bulk of your money is locked away, you could run into financial trouble. Also, when the term ends, you have the opportunity to shop around the market for a better rate, whereas with a long-term deposit you need to wait it out. However, interest on short-term deposits is usually paid at maturity, unlike long-term deposits where interest can be awarded throughout the life of the term.

    Which term deposit suits you best?

    If you have a short-term savings goal, a short-term deposit may be your best choice. For example, if you’re planning to go on an overseas trip in 12 months or need to purchase a car next year, a short-term deposit is a good way to make sure you don’t spend your money in the interim. It is also suited for first-time investors, who may be nervous about committing to anything long term or who may not have other forms of equity or assets to bail them out in an emergency.

    Long-term deposits are suited to people who may have more cash or assets and are more comfortable with locking some of it away for a few years. If an emergency comes up, they know they will have access to enough money to deal with it. It is also suited for people who are looking for a long-term investment strategy, and already have, or a planning to have, a diversified investment portfolio.

    How can I compare term deposits?

    If you’ve decided what length term deposit best suits your savings needs, the next step is to compare the term deposits available.

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    Picture: Shutterstock

    Alison Banney

    Alison Banney is a Banking and Investment Writer for finder.com.au. She holds a Bachelor of Communications and has worked in the content team for one of Australia's biggest banks.

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