Best term deposit rates

Is 2024 a good time to lock in a term deposit rate?

For years, term deposit rates were so low you might as well have stuck your money under a rock. But today, it's possible to get a term deposit rate of around 5%.

Rates are a little higher for the top savings accounts. But you have to do more work to get the high rate each month. Unlike a term deposit.

Will rates go higher or lower soon? This is the big question. And no one really knows. It depends what the Reserve Bank does with the cash rate. Right now, it seems that the cash rate could stay where it is. It may fall later in the year if inflation falls further.

If it doesn't, rates might go even higher. Of course, it's impossible to "time the market" when it comes to these things.

Market update by Richard Whitten – Finder money editor

Which Australian banks have the best term deposit rates?

Term deposit rates are changing a lot at the moment - and for the better. Here are some of the highest rates for May 2024:

3 month term deposits

Bank of Sydney Term Deposit - 5%

Great Southern Bank Term Deposit Account - 4.9%

6 month term deposits

Bank of Sydney Term Deposit - 5.25%

Great Southern Bank Term Deposit Account - 5.2%

Heartland Bank Term Deposit - 5.35%

Great Southern Bank Term Deposit Account - 5.2%

Judo Bank Term Deposit - 5.2%

State Bank of India Term Deposit- 4.9%

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MyState Bank Online Term Deposit

MyState Bank Online Term Deposit

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3.50 % p.a.

max rate

7

month term

• Maximum rate: 3.5% p.a.
• Minimum deposit: $5,000
• Account fees: $0

MyState Bank Online Term Deposit

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What is a term deposit?

A term deposit is a type of savings account that offers a fixed interest rate. But unlike a savings account, you lock the deposit away until the term deposit matures (that is, the end of the term).

It's a low-risk way of earning a guaranteed, fixed return on your cash. You can choose a term deposit length from just 1 month long up to 5 years, and you'll earn a set interest rate for the duration of your term length.

How do term deposits work?

Term deposits are a big source of funding for banks. A bank takes your money, pays you a fixed rate of interest and then uses this money to fund loans or other activities.

Banks set their term deposit rates based on several factors, including:

• The official cash rate target. The Reserve Bank determines banks' short term borrowing costs. And this affects rates on term deposits.
• Market competition. Banks also consider what their competitors are doing when setting term deposit rates. Some banks want to encourage customers to save via term deposits, and so they make their rates more competitive.
• Maturity terms. Banks offer lower rates on shorter terms and higher rates on longer ones.

How to get the best term deposit interest rate

Here are a few ways to make sure you're getting a good rate:

• Consider smaller lenders, credit unions and digital banks. Don't just look at the Big Four.
• Compare term lengths: 6-month rates are often better than 3-month rates, and 24-month rates are often better again.
• Look for providers that offer extra interest as a loyalty bonus.
• Negotiate your rate with the bank to see if you can get a better deal.

How to compare term deposits

• Choose the right term length. You can put away your money for 3 months or several years. It depends on the rate you can get and when you need the money. If you're saving for a short-term goal like a holiday you may only need a 6-month term.
• Look for the highest interest rate. The higher the rate, the more you earn.
• Check the conditions for breaking the term deposit. In an emergency you may need to access your money fast. Some term deposits charge a fee for this, while others require a month's notice first.
• Look at how the term deposit pays interest. Some term deposits pay interest on a monthly basis, annually or at maturity (when the term ends). Getting interest paid at maturity often gets you a bigger interest payment.
• Watch out for automatic rollover. Some term deposits automatically roll over at the end of the term, meaning your money will be locked up for a new term. This is a handy feature if you want to keep building up interest with zero effort. But if you need to access the money make sure you notify the bank and don't let it roll over.

Pros and cons of term deposits

Term deposits are a very low-risk way to earn some interest on your savings. They're less attractive while rates are low. The biggest risk is that you can't easily access money saved in a term deposit in an emergency.

If you think you'll need to access cash in a hurry consider a savings account.

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I was helping a family member compare savings options recently. They started looking at high interest savings accounts, then term deposits from the Big Four banks and some smaller banks with slightly higher rates. In the end they chose a term deposit from a big bank. The rate was slightly lower than the best in market, but they liked the convenience of the bank's app (they were already a customer). They had considered a high interest savings account too, but the bonus rate had a few conditions they weren't confident they'd meet each month.

— Richard Whitten, money editor

FAQ: More questions about term deposits

• Can I have more than 1 term deposit?

  Yes, you can have more than 1 term deposit. There are a few reasons why you might want to do this. If you have a large deposit over $250,000, splitting your deposit up between more than 1 bank will ensure all your money is covered under the bank guarantee scheme. You might also choose to open a few different length term deposits for different short or long-term goals.

• Are there any fees for term deposits?

  Term deposits typically do no charge any set-up fees or account keeping fees. You may be required to pay a fee if you want to break your term deposit early, however instead of a fee this usually results in a reduction of interest.

• Do I need to pay tax on my term deposit?

  Yes. If you've invested money in a term deposit, you will need to pay tax on the interest you earn (the same goes for savings accounts). Interest is classified as another form of income, so the amount of tax you'll need to pay on your term deposit interest will depend on your overall taxable income.

• What happens if my bank changes the interest rate?

  Once you open a term deposit the interest rate is fixed for the life of the term. This means if your bank changes the interest rate, whether it increases or reduces, your rate will remain unchanged.

• Can I get a good term deposit rate for $100,000?

  If you've got a large balance of $100,000 or more, make sure you look for a term deposit that can be opened for larger balances. Some term deposits are only for smaller deposits of $10,000, $25,000 or $50,000 max.

  Here are a few of the best 12-month term deposit rates for balances over $100,000:

  • 5.25% p.a. with Judo Bank.
  • 4.9% p.a. with ING.
  • 5.25% p.a. with Bank of Sydney.

• How do I close my term deposit?

  If your term deposit has reached maturity, then you withdraw all the funds like with a regular bank account. However, if your term deposit is still maturing, then your bank will charge a penalty for withdrawing your funds early. To do this, you'll need to get in touch with your bank directly.

• I'm not an Australian resident. Can I open a term deposit?

  Most banks will require an Australian residential address to open a term deposit.

• What does it mean when your term deposit matures?

  When your term deposit matures or reaches maturity means the term length has come to an end. You can then choose to reinvest the money into a new term at the current term deposit rate offered by the bank or switch to a term deposit with a different bank. You can also withdraw the money and add it into a savings account, invest it or spend it - the choice is yours.

Looking for something else?

• Business term deposits provide fixed interest rates and the security of guaranteed returns.
• Long term deposits lock in rates from anywhere from 12 months to five years.
• Kids term deposits are suited specifically to children.
• SMSF term deposits are designed to help build your savings for retirement.
• Savings accounts and term deposits allow you to earn interest on your money.

Serina Bird is a proud frugalista who has amassed a multi-million dollar portfolio through frugal living and investing. She is the author of several books, including How To Pay Your Mortgage Off in 10 Years, The Joyful Frugalista and The Joyful Startup Guide, and host of The Joyful Frugalista podcast.