Term deposits with loyalty bonuses
There are very few term deposits available today that offer a loyalty bonus interest rate for repeat term investments.
Key takeaways
- If a term deposit offers a loyalty bonus rate, this is added to the fixed rate if you re-invest your money into a new term deposit with the bank when yours ends.
- It's fairly uncommon to find a term deposit with a loyalty bonus rate.
- Instead of looking at the loyalty bonus, it's far more important to consider the fixed interest rate on offer for the term.
What are term deposits with loyalty bonuses?
Some financial institutions offer loyalty bonuses with their term deposit accounts to encourage customers to reinvest their money.
These bonuses usually take the form of an additional interest rate on your balance when you decide to rollover the funds from a matured term deposit into another, new term. They're usually an additional 0.10% p.a.
This bonus interest rate is applied on top of the standard fixed rate that the bank is offering, allowing you to earn more interest on your deposit.
Terms and conditions attached to a loyalty bonus
Read the fine print to determine what you need to do to receive the loyalty bonus. For example, do you need to roll over all of your funds into a new term deposit, or only a certain portion of those funds? Do you need to roll over into a deposit with the same term?
Also check whether that bonus rate will still apply if you rollover your funds into another deposit when your new account reaches maturity.
Which banks offer term deposits with loyalty bonuses?
Very few banks offer a loyalty bonus on their term deposit products. We've only found 2 banks that still offer these:
- Judo Bank Term Deposit: 10% p.a. loyalty bonus applied on top of the fixed rate when you automatically reinvest your term deposit funds into a new term deposit. This loyalty bonus is available on all term lengths.
- Rabobank Term Deposit: 10% loyalty bonus applied on top of the fixed rate when you automatically reinvest your term deposit funds into a new term deposit. This loyalty bonus is available on all term lengths.
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Advantages and disadvantages of a loyalty bonus
The advantages
- You earn a higher interest rate for your loyalty. The main advantage of a loyalty bonus on a term deposit is that you can easily earn a better interest rate on your investment balance than what the bank is offering first-time customers, allowing you to enjoy better returns.
- It’s an incentive to continue saving and reinvest. The enticement of a bonus interest rate can be a great way to encourage people to re-invest their money rather than dipping into their savings balance.
Disadvantages
- Your funds will be locked for longer. By reinvesting your money into a new term deposit right away, you'll be locking that money away for the same period of time and won't be able to access it in between.
- Lose the chance to compare. If you automatically roll over your term deposit with the same bank, you could be signing yourself up for a lower interest rate than what you could get elsewhere (even with the bonus!).
- Not much impact. Unless you have a very large amount of money invested, a 0.10% p.a. loyalty bonus is unlikely to make a significant difference to your balance.
How much extra interest can you earn with a loyalty bonus?
Let's look at the following fictional example to see how much you could potentially earn with a 0.10% p.a. loyalty bonus.
| Deposit amount | Term length | Fixed rate | Loyalty bonus | Total interest | |
|---|---|---|---|---|---|
| Current bank | $50,000 | 12 months | 4.50% p.a. | 0.10% p.a. | $2,300 |
| Different bank | $50,000 | 12 months | 4.50% p.a. | Nil | $2,250 |
As you can see, even with a large balance of $50,000, you'd only earn an additional $50 in total interest with a loyalty bonus.
Our expert says: You could earn more interest elsewhere
"Just because a bank is offering you a 0.10% p.a. loyalty bonus, it doesn't mean that's the best interest rate on offer in the market. The loyalty bonus will be applied on top of the current fixed rate the bank is offering - it's not applied to the fixed rate that you were earning with the initial term deposit.
Rates may have fallen a lot since you opened your initial term deposit, and you might find another bank that's offering a higher rate even without the extra loyalty bonus."
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