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Term deposit penalties

If you want to withdraw money from a term deposit before it matures, you'll either pay a fee or get a lower interest rate.

What you need to know:

  • Most banks either charge a fee or reduce your interest payments if you withdraw money from a term deposit before maturity.
  • Term deposit withdrawal fees and conditions vary by bank. Some banks require 31 days' notice before letting you access funds.
  • If you withdraw money early your bank may lower your interest rate.

What term deposit penalties apply if I withdraw before maturity?

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.

Lower interest rates

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.

Break fees

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.

Don't forget about minimum balance requirements

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.

How to break a term deposit

  1. Check your bank's term deposit rules and work out how much interest you'll lose or what fees you'll pay. You may decide it's not worth the cost. Your bank may not even allow you to access your funds before maturity.
  2. Notify your bank that you wish to withdraw some or all of the money from the term deposit. Some banks will close your account and transfer the funds in a few days. But some require a notice period of up to 31 days.

What term deposit withdrawal fees do Australian banks charge?

Commonwealth Bank term deposit penalty

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 term deposit penalty

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 term deposit penalty

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.

NAB term deposit penalty

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.

ING term deposit penalty

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.

Why do banks impose term deposit penalties?

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.

How to avoid term deposit penalties

Plan ahead

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.

The financial hardship rule

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.

Make use of cooling-off periods

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.

Partial withdrawals without penalty

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.

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