The best term deposits you’ll wish would never end

What are the highest term deposit rates in the market right now?

If you're thinking about getting a term deposit now is a pretty good time. Interest rates are higher than they've been since 2011.

Right now, the highest (and therefore best) term deposit rates start with a 5. Here are some of the market's highest 6 and 12-month term deposit rates:

• 5.1% for 12 months with Heartland Bank.
• 5.1% for 12 months with Community First.
• 4.9% for 12 months with Judo Bank.
• 5.15% for 6 months with Heartland Bank.
• 5.05% for 6 months with G&C Mutual Bank.
• 5% for 6 months with MOVE Bank.

Market update by Richard Whitten – Finder money editor

Best 12-month term deposit rate

Heartland Bank Term Deposit

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Heartland Bank's 12-month term deposit offers a rate of 5.1%.

• Why we like it. It's the highest 12-month term deposit rate on the market right now. It's higher than many high interest savings accounts.

• What to look out for. The only downside to this term deposit is that you'll need to deposit at least $25,000. That might be too high for some savers.

Best 6-month term deposit rate

Heartland Bank Term Deposit

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Heartland Bank's 6-month term deposit offers a rate of 5.15%.

• Why we like it. It's the highest 6-month term deposit rate on the market right now.

• What to look out for. As with the 12-month term, the only possible issue with this term deposit is the minimum deposit of $25,000. That might be too high for some savers.

Best 3-month term deposit rate

BNK Bank Term Deposit Account

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BNK's 3-month term deposit offers a rate of 4.75%.

• Why we like it. It's the highest 3-month term deposit rate available. If you're looking to lock up some funds for a short time, this is a good deal. It also has a low minimum balance of $5,000.

Best 24-month term deposit rate

Judo Bank Term Deposit

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Judo Bank's 24-month term deposit offers a rate of 4.7%.

• Why we like it. It's the highest 24-month term deposit rate on the market. While you can get higher rates for shorter terms, those looking to put away some funds for the longer term can't get better than this.

• What to look out for. This product also has a really low minimum balance of $1,000. And it's well suited to really high balances as you can deposit up to $1,000,000.

What is a term deposit?

A term deposit is a type of savings account that offers a fixed interest rate for a fixed period. But unlike a savings account, you lock the deposit away until the term deposit matures (that is, the end of the term).

The bank offers you a fixed interest rate. This won't change. The money you've deposited sits in the term deposit account earning interest. You just leave it there.

Once the term reaches maturity you can pull your initial deposit out plus the interest you've earned. You can also choose to reinvest a portion or all of the funds at the interest rate stated by your bank.

Term deposits are widely considered to be a safe, low-risk investment as, unlike savings accounts, they offer a guaranteed return through a fixed interest rate. Because your money is locked away, banks often offer a higher interest rate on some term deposits than they do on regular savings accounts. If you have a chunk of money you know you won't need for a while, a term deposit could be a good option. It removes the temptation to spend the money as you'll need to pay a fee if you wish to withdraw before the term is finished.

Term deposit versus savings account

The main difference between a savings account and a term deposit is the ability to access your money. The money in a savings account can be accessed whenever you need it, and there's no costs for withdrawing or depositing money. Term deposits are locked and will charge you if you need to withdraw your money early. So if you want easy access to your money, then a term deposit might not be right for you.

Another key difference is the interest rate; savings accounts have variable interest rates meaning they can change, while term deposits have fixed interest rates meaning the rate will not change until the term matures.

Example

You put aside $40,000 for a 12-month term deposit with a fixed rate of 5.00%. At the end of the term, the deposit matures and you receive the $40,000 back plus $2,000 interest.

How to compare term deposits

• How long do you want? You can lock up your savings for anywhere between 3 months and 2 years. Some banks offer even longer terms. If you're saving for a holiday later in the year, a 12-month term is too long. If you're saving for a house, 3 months is likely too short.
• Look for the highest interest rate. The higher the rate, the more you earn. Most banks offer the highest rates on 6 to 12 month terms.
• Can you access the money early? In an emergency you may need to access your money fast. Some term deposits charge a fee for this, while others require a month's notice first. The amount of interest you get drops when you break the term deposit too.
• Look at how the term deposit pays interest. Some term deposits pay interest on a monthly basis, annually or at maturity (when the term ends). Getting interest paid at maturity gets you a bigger interest payment.
• Watch out for automatic rollover! Some term deposits automatically roll over at the end of the term, meaning your money will be locked up for a new term unless you withdraw it. This is a handy feature if you want to keep building interest. But not if you need the money when the term ends.
• Deposit amounts. Check how much (or how little) the bank requires you to deposit. Some banks won't let you open a term deposit unless you have $25,000. Others start as low as $1,000. If you've got a big pile of cash check the maximum deposit amount.

Is a term deposit right for me?

Term deposits are a really easy way to earn interest on your savings. But many bank customers prefer a high interest savings account because they can often earn a bit more interest and add to their savings each month.

A term deposit is better suited to people who already have some money saved and are able to put it away and not touch it for a while.

Questions to ask before investing in a term deposit

• How often interest is calculated is it compounded?
• Do any ongoing fees apply?
• What happens if you break the term of your deposit?
• Can you withdraw a portion of the deposit without incurring a penalty?
• How often will you receive statements?
• Can you easily check on the balance in your account (for example with a mobile banking app)?
• What happens to the deposit when it matures? For example, will it automatically roll over into another term deposit?

Finder survey: What term deposit features do Australians value most?

4 tips to get the best term deposit interest rate

1. Consider smaller lenders, credit unions and digital banks. Don't just look at the Big Four.
2. Compare term lengths: 6-month rates are often better than 3-month rates, and 24-month rates are often better again.
3. Look for providers that offer extra interest as a loyalty bonus.
4. Negotiate your rate with the bank to see if you can get a better deal.

Why you can trust our banking experts

Obsessed with great rates - We nerd out over RBA decisions and monitor the market daily to make sure you get the best interest rates from banks big, small and digital (and the odd credit union).

Cash in your own time frame - over 180 term deposit options tracked against 8 time frames from 3 months to 5 years. Dig into the data, or get the quick and easy editorial "best" if you're in a hurry.

No BS - We don't have a call centre, we're not owned by a bank. Heck, you don't even need to give us your email. Our job is to get your money to work harder and let that sweet interest grow.

"I was helping a family member compare savings options recently. They started looking at high interest savings accounts, then term deposits from the Big Four banks and some smaller banks with slightly higher rates. In the end they chose a term deposit from a big bank. The rate was slightly lower than the best in market, but they liked the convenience of the bank's app (they were already a customer). They had considered a high interest savings account too, but the bonus rate had a few conditions they weren't confident they'd meet each month."

Richard Whitten

Editor

Frequently asked questions about term deposits

• Can I have more than 1 term deposit?

  Yes, you can have more than 1 term deposit. There are a few reasons why you might want to do this. If you have a large deposit over $250,000, splitting your deposit up between more than 1 bank will ensure all your money is covered under the bank guarantee scheme. You might also choose to open a few different length term deposits for different short or long-term goals.

• Are there any fees for term deposits?

  Term deposits typically do no charge any set-up fees or account keeping fees. You may be required to pay a fee if you want to break your term deposit early, however instead of a fee this usually results in a reduction of interest.

• Do I need to pay tax on my term deposit?

  Yes. If you've invested money in a term deposit, you will need to pay tax on the interest you earn (the same goes for savings accounts). Interest is classified as another form of income, so the amount of tax you'll need to pay on your term deposit interest will depend on your overall taxable income.

• What happens if my bank changes the interest rate?

  Once you open a term deposit the interest rate is fixed for the life of the term. Your bank cannot change the interest rate before the end of the term.

• Can I get a good term deposit rate for $100,000?

  If you've got a large balance of $100,000 or more, make sure you look for a term deposit that can be opened for larger balances. Some term deposits are only for smaller deposits of $10,000, $25,000 or $50,000 max.

  Here are a few of the best 12-month term deposit rates for balances over $100,000:

  • 4.9% p.a. with Judo Bank.
  • 4.95% p.a. with ING.
  • 4.75% p.a. with Bank of Sydney.

• How do I close my term deposit?

  If your term deposit has reached maturity, then you withdraw all the funds like with a regular bank account. However, if your term deposit is still maturing, then your bank will charge a penalty for withdrawing your funds early. To do this, you'll need to get in touch with your bank directly.

• I'm not an Australian resident. Can I open a term deposit?

  Most banks will require an Australian residential address to open a term deposit.

• What does it mean when your term deposit matures?

  When your term deposit matures or reaches maturity means the term length has come to an end. You can then choose to reinvest the money into a new term at the current term deposit rate offered by the bank or switch to a term deposit with a different bank. You can also withdraw the money and add it into a savings account, invest it or spend it - the choice is yours.

• How does the RBA cash rate affect my term deposit?

  The Reserve Bank of Australia's (RBA) cash rate is one of the factors that bank's consider when setting their interest rates for deposit products. Given that the RBA aims to keep inflation between 2 - 3%, an interest rate of 2.5% or lower on your term deposit could mean that your investment isn't keeping up with inflation. Term deposits, like other investments, are great when the RBA cash rate is high. But when the cash rate is low, you may want to seek alternatives, such as shares.

Looking for something else?

• Business term deposits provide fixed interest rates and the security of guaranteed returns.
• Long term deposits lock in rates from anywhere from 12 months to five years.
• Kids term deposits are suited specifically to children.
• SMSF term deposits are designed to help build your savings for retirement.
• Savings accounts and term deposits allow you to earn interest on your money.

To make sure you get accurate and helpful information, this guide has been edited by Richard Whitten and reviewed by Serina Bird, a member of Finder's Editorial Review Board.

Written by

Alison Banney

Editor

Alison Banney is the money editorial manager at Finder. She covers all areas of personal finance, and her areas of expertise are superannuation, banking and saving. She has written about finance for 10 years, having previously worked at Westpac and written for several other major banks and super funds. See full bio

Alison's expertise

Alison has written 645 Finder guides across topics including:

• Superannuation
• Savings accounts, bank accounts and term deposits
• Budgeting and money-saving hacks
• Managing the cost of living