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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. The only downside is that your money is locked away for a while.
The primary risk with a term deposit is that your bank may charge fees or restrict your ability to access the money early.
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.
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.
Term deposits and the Financial Claims Scheme (FCS)
Under the FCS, any money you deposit with a 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 bank, including building societies and credit unions, will almost certainly be an ADI, but you can check via APRA's ADI register.
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
Are there any term deposit risks?
Term deposits are basically risk-free. But you need to understand how they work and their drawbacks.
Any financial product represents a risk if it's not suitable for your specific needs.
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?
Banks let you withdraw money from a term deposit before maturity. But:
There might be an early withdrawal fee
You could lose any interest you might have earned
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 (with higher risk) by investing the money. Sometimes even high interest savings accounts have slightly higher rates.
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 you can miss out on better returns.
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 5%. You would miss out on a higher return.
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 deposits are considered very safe, with little risk of losing your principal investment. If you invest in a term deposit with an authorised deposit-taking institution (ADI), the government will guarantee up to $250,000 per person in the event that the bank goes out of business. Note that you may lose potential interest earnings if you need to break the term early, and fees/penalties could apply.
This is a personal decision that depends on your age, retirement goals, investment strategy, income and more. In a general sense, superannuation often offers better long-term growth due to tax benefits, whereas with term deposits your money is more liquid/accessible.
The best term deposit rates vary among banks, and it’s essential to compare offers. Finder regularly updates information on the best term deposit rates available from Australian banks.
Yes, term deposits can be broken, but this usually incurs a penalty, such as reduced interest or not interest, or an early withdrawal fee. It's important to consider this before committing to a term deposit, as a high interest savings account may be more suitable.
In Australia, term deposits up to $250,000 are protected by the government's Financial Claims Scheme, ensuring your funds are safe even if the bank fails.
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 634 Finder guides across topics including:
Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206), a Tier 1 Generic Knowledge certification and a Tier 2 General Advice Deposit Products (RG 146) certification. See full bio
Richard's expertise
Richard has written 544 Finder guides across topics including:
HI there ,are term deposits the safest way the save? Can anybody hack in a term deposit account and commit fraud.
Kind Regards
marcel
Finder
AlisonFebruary 22, 2023Finder
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
CinderellaFebruary 1, 2018
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?
AshFebruary 16, 2018
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.
Please do not hesitate to reach out to us again if you have additional questions.
Cheers,
Ash
GarrySeptember 5, 2017
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
DanielleSeptember 6, 2017
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-protect-money.
I hope this helps.
Cheers,
Danielle
CarmenAugust 21, 2017
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
Finder
MayAugust 22, 2017Finder
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
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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-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