Penalties apply when you break the fixed investment period of a term deposit, but the penalty fees are calculated differently from one financial institution to the next.
Some banks deduct a percentage of your interest rate based on how early you withdraw the money. This is sometimes called a prepayment adjustment.
Let's say your term deposit rate is 5.0% and you withdraw the entire sum halfway through the term. Your bank applies a 50% prepayment adjustment, meaning your interest rate falls to 2.50%.
Banks charge different adjustments depending on how far into the term you are.
Some banks charge a fee for accessing your money early. This is sometimes called an administration fee.
Check your bank's term deposit terms and conditions.
Minimum balance limits often apply to term deposits. So even if you are only withdrawing a partial amount, if this reduces your account balance to below the minimum limit, your account could be automatically closed and the interest rate reduction could apply to the entire balance.
If you need to withdraw money from a Commonwealth Bank term deposit before the end of the term, you will need to give the bank 31 days' notice. In addition to a $30 prepayment administration fee, you will also be hit with a prepayment adjustment.
The prepayment interest adjustment reduces your actual interest rate based on how far into the term you are when you break it. The earlier you break the term deposit, the lower your rate becomes.
Westpac also requires 31 days' notice when you wish to withdraw funds ahead of schedule, with an interest rate reduction based on how early into the term you withdraw the funds.
ANZ charges a $30 administration fee if you make an early withdrawal from one of its term deposits. You also earn interest at a reduced rate.
For ANZ's Advance Notice Term Deposit you need to provide 31 days' notice before you can withdraw funds.
You'll need to give 31 days' notice if you want to withdraw money early from an NAB term deposit, while you'll also be paid a reduced interest rate on the amount you withdraw.
If you choose to close an ING term deposit account early, you need to give 31 days' notice. If you have less than 31 days left on your term, you will not be able to access funds until maturity. However, these times may be waived in the case of financial hardship.
You will also earn a reduced interest rate.
"Banks have clear penalties in place for accessing a term deposit early. However, it's still worth a try to get some of these waived if you do need to do it. If you're a long-term customer with the bank and have other products with them you might have a bit more negotiating power to get the term deposit termination fee waived. It's always worth asking, the worse they'll say is no."
A term deposit is an agreement between you and the bank. You deposit your funds and the bank agrees to pay you a fixed rate or return. At the end you get your money back.
The bank takes your funds and uses it for other purposes. The idea is that you don't withdraw the money and the bank can use it for other purposes, such as investing or lending it out at interest.
By breaking the agreement the bank has to come up with your money quickly. Charging a fee or paying you a lower rate of interest makes up the cost and inconvenience of doing so.
Before you open a term deposit, consider your future financial needs and whether you are likely to need to access your money before maturity. While it’s impossible to predict the future and the emergencies that may arise, you may decide that you may be better off opening a savings account that provides easy access to funds whenever you need.
If you're experiencing financial hardship and need urgent access to funds in your term deposit, your bank may waive the 31 days' notice requirement that applies.
Some providers have cooling-off periods that begin immediately after you open a term deposit and run for a short period, allowing you to close your account without incurring any penalties. If your term deposit does include a cooling-off period, make use of this time to consider whether it is the right account for you.
Some term deposits allow you to make a partial withdrawal from your account without incurring a penalty. Keep an eye out for these accounts when comparing term deposits.
Check out Finder's review of Judo Bank's Term Deposit for SMSFs.
Compare term deposit rates from Australia's Big Four banks and see if you can find a better rate with a smaller bank.
Lock in a fixed rate on a range of term lengths between 3 months and 3 years for deposits $1000 or more.
Earn a competitive interest rate on terms between 1 month and 2 years with a Heartland Bank term deposit.
If you struggle to save, you could benefit from a savings account that won’t allow you to withdraw funds.
With high interest rates offered in a variety of different terms, the AMP term deposit could be ideal for both short and long term saving goals.
Your guide to finding the best term deposit accounts for kids, allowing your children to enjoy the security of guaranteed returns on the money they invest.
Set your own terms and conditions for how your money grows with a flexible investment account that rewards you with higher interest earnings.
Australian Military Bank’s Investment Plus term deposit lets your money earn competitive interest. You can choose a term as per your liking.
With the ME term deposit you get a flexible savings plan with options that let you customise the terms to suit your needs.