If you have plans for future expenditure, then a term deposit account can help you manage your finances over the long term.
A long term term deposit is ideal for Australians who are trying to save for future expenditure. Whether it’s for a down payment on a house or college education for your child, a term deposit will hold your money until it matures, enabling you to earn competitive interest and plan ahead.
Compare 1, 2, 3, 4 and 5 year term deposits below
How does a term deposits work?
Term deposits are special savings accounts where you can bank your money for months or years, without being able to access it for a given period of time. You can choose the amount of time needed when you open the account, which can range from 12 - 60 months. There are also shorter terms available if you only need a short amount of time to save your money.
Your savings balance will generally have interest calculated on it daily. It will be up to you to choose the frequency that interest is then paid into your account.
How do I compare term deposits?
Your first decision when comparing term deposit accounts is to decide how long you want the term to be. They can range from 12 to 60 months, with the rate of interest rising the longer you wait for maturity.
Once you have an idea of how long you need to meet your savings goal, you should begin comparing the accounts between the different banks, taking into consideration the following:
- Frequency of interest payments. Long term term deposits give you a number of choices when it comes to making your interest payments into your account. You can choose from monthly, fortnightly or annual interest payments. You could also wait until the account reaches maturity, but if you do, you’ll lose the benefit of earning interest on the money you have been earning with your savings.
- Fees. You should be able to find a number of banks that charge minimal fees for their term deposit products. You should carefully research these fees before making your decision, and try to avoid any lenders that charge for early withdrawals.
- Interest rate. This is an important feature that can differ dramatically between different lenders. Be sure that if you are hoping to gain interest with your account, you are choosing one with a competitive interest rate by market standards.
- Minimum balance. These are not accounts that are structured for a savings balance in the hundreds of dollars. At minimum, you will find accounts that allow an initial deposit of $1,000, but most will expect more.
By not being able to make withdrawals from your savings, a long term term deposit can be helpful in ensuring that you’re able to meet a long term goal.Back to top
Any pros and cons to consider?
When comparing different term deposit accounts on the market, you should weigh up the advantages and drawbacks;
- Flexibility. With a long term term deposit you have control over how long the term is and when the interest payments are applied. This allows you to structure your account in a way that will best suit your saving needs and goals.
- No fees. You will not be facing monthly deductions from your account for service fees.
- Incentive to save. Facing penalties is a good incentive for not making an early withdrawal of your savings balance.
- No bonus interest. You can augment your savings quickly in bonus saver accounts by meeting certain deposit and withdrawal terms. With a term deposit for long term saving there is no bonus interest that you can earn.
- Accessibility. This is not an account for keeping as a rainy day fund, as it could take months to access if you needed to use your savings for an unexpected situation. This, along with the penalty charges, makes it difficult to use for an emergency situation.
What are the risks?
While you will not be risking your savings if it you balance is less than $250,000 thanks to the Australian Government guarantee scheme, there are things you should avoid to ensure you are getting the most benefit from your term deposit account:
- Term deposit roll-over. Even though you have chosen terms, the bank may roll the account into a new term deposit if you don’t let them know that you will be making your withdrawal at maturity. Before allowing this to happen, make sure that you compare the rates again, as the Reserve Bank of Australia (RBA) may have made inflation and interest rate adjustments since you last opened the term deposit. This could impact the amount of interest you are earning from the long term term deposit.
- Pre-term withdrawals. If you do make the withdrawal before maturity, not only will you be charged a penalty fee, but the interest calculated will be adjusted to meet the interest you would have received for a shorter term deposit.
Frequently asked questions
Are there long term deposits available online?
Yes, not only do some online financial institutions offer long term deposit accounts, many regular banks will also provide you with access to the account through their e-banking network.
Can my earned interest be paid into a different account?
This depends on the features the bank offers, but yes some will allow this if you want access to the earned interest.
Do interest rates rise with longer terms in a term deposit account?
Yes, the longer the terms the higher the interest rate amount will be.