Are term deposits safe?
With fixed interest rates and the backing of a government bank guarantee, term deposits are one of the safest financial products available.
Key takeaways
- Term deposits are a low-risk savings product with a fixed interest rate and guaranteed return.
- Deposits up to $250,000 in a term deposit with an Australian bank are protected by the government's Financial Claims Scheme (FCS).
- The downside of a term deposit is you can't access your money until the term ends.
How safe are term deposits?
Term deposits are a safe, low-risk financial product. Unlike most investments, you can't lose money. And unlike a savings account, your rate won't go down if rates change while your term deposit is still active.
With a term deposit, you lock up the money with your bank at a fixed rate, for a fixed period. At the end of the term deposit your investment matures and you receive the original deposit plus the interest you've earned.
Your return is fixed and guaranteed, unlike with an investment property or investing in the stock market. This means you'll know exactly how much interest you'll earn at the end.
Finder survey: Why do Australians get a term deposit?
Most Australians who open a term deposit do so to earn a guaranteed return.
| Response | |
|---|---|
| Get a guaranteed/risk-free return | 36.36% |
| Meet a savings goal | 30.45% |
| Diversify investment portfolio | 15% |
| Prevent spending | 13.64% |
| Other | 4.55% |
Source: Finder survey by Pure Profile of 1113 Australians, December 2023
Term deposits and the Financial Claims Scheme (FCS)
The only way you could theoretically lose money with a term deposit is if the bank collapsed, which is very unlikely. However even if this were to happen, bank accounts, savings accounts and term deposits are protected by the Australian government's Financial Claims Scheme.
Under the FCS, any money you deposit with an Australian bank is protected, up to a total value of $250,000 per person, per bank.
Organisations protected under the FCS must be authorised deposit-taking institutions (ADIs). Any Australian bank, including building societies and credit unions, will almost certainly be an ADI, but you can check via APRA's ADI register.
Our expert says: Things to know about the Financial Claims Scheme
"Under the Financial Claims Scheme, your deposit up to the value of $250,000 is guaranteed by the government. This is per person, per bank - not per account. So if you have multiple deposit accounts with the same bank, you'll only be covered for the first $250,000 combined.
If you've got a large amount of money to deposit, you could consider splitting it up over more than one bank. That way, you'll be covered for the first $250,000 in each different bank."
Are there any term deposit risks?
Term deposits are basically risk-free, in terms of losing money. However, there are some downsides of term deposits.
You can't access your money once it's locked away
Unlike a savings account, with a term deposit you put the money away and forget about it.
But what if you signed up for a 12-month term deposit and then, 6 months in, you suddenly need the cash for an unexpected expense?
Each bank will have its own penalties in place for an early term deposit withdrawal, which could include:
- An early withdrawal fee
- You could lose any interest you might have earned already
- Some banks require a notice period of up to 31 days
In an emergency you can access money in a savings account much faster than in a term deposit.
Term deposits offer a modest return
You could get a higher return by investing the money in the sharemarket. But, you will of course have to take on more risk in exchange for the potential of a higher return.
Sometimes even high interest savings accounts have slightly higher rates than term deposits, although you'll need to meet a few monthly conditions.
Your rate is fixed
Your term deposit rate won't change. This means it won't go down. But in a period of rising rates, it also won't go up.
Let's say you locked in a 3% term deposit for 24 months and then rates started rising. Now your bank is advertising a term deposit rate of 4%. You would be locked into the lower rate until your term deposit ends.
Watch out for automatic rollover
Unless you specify otherwise, many banks automatically roll over a matured term deposit into a new term deposit.
Your bank should notify you close to the term deposit's maturity date. If you don't want the account to roll over, make sure you tell your bank beforehand.
Term deposit comparison
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How we picked these
Finder Score for term deposits
Finder Score assigns Term Deposit products a score out of 10, comparing interest rates and features, to make comparison easier. We assess over 150 products from more than 90 providers, assessing products across different terms to determine an average score per product.
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HI there ,are term deposits the safest way the save? Can anybody hack in a term deposit account and commit fraud.
Kind Regards
marcel
Hi Marcel,
Term deposits are one of the safest ways to invest. Your deposit up to $250k in an Australian bank term deposit is protected by the government bank guarantee scheme.
Like with any account you have, you need to keep your account information secure and not share passwords or log in details with anyone.
Thanks,
Alison
How much does the Government Backed Guarantee cover?
If I had more than that amount to invest, would that guarantee cover a second investment as well?
Hi Cinderella,
Thank you for reaching out to us.
The covered amount of the Government Guaranteed Scheme is $250,000 for every account-holder and every Authorised Deposit-taking Institutions (ADIs). If you have separate accounts with different protected institutions with less than $250,000 deposits, you will be covered for both accounts. In case you have $250,000 with two different “brands” but they’re operated under the same bank, you’ll only get $250,000 in total.
You won’t be covered by the deposit amount over $250,000. You can learn more about the Australian Government Guarantee Scheme.
I hope this helps.
Please do not hesitate to reach out to us again if you have additional questions.
Cheers,
Ash
If a married couple have a savings account with a balance of $600,000, is the government guarantee an amount of $250,000 EACH or $250,000 in total
Hi Garry,
Thank you for contacting finder. We are a comparison website and general information service, we’re more than happy to offer general advice.
The Australian Government guarantees deposits up to $250,000 in Authorised Deposit-taking Institutions (ADIs) such as banks, building societies or credit unions. This means that this money is guaranteed if the institution collapses. This cap applies per person and per ADI. You may refer to this page for more information https://www.finder.com.au/bank-accounts/bank-protect-money.
I hope this helps.
Cheers,
Danielle
Hi
If I have invested in 2 term deposit with 2 different banks are both accounts protected up to the $250000 govt guarantee per acct or is it only the one
Hi Carmen,
Thank you for your inquiry.
The $250,000 cap applies per person and per ADI (such as your bank, building society or credit union). If you have $250,000 deposit with one ADI and $250,000 with another, then both of your deposits are guaranteed. However, if you have multiple deposit accounts with “brands” that are owned by the same ADI (bank), the guarantee will only apply to $250,000 of these funds in total.
So to make sure how much you’ll be guaranteed for, I would suggest that you check the ADI you bank with your two deposit accounts if they are one company or not.
Hope this helps.
Cheers,
May