When will term deposit rates go up?

Term deposit rates are currently at record lows, and unfortunately there's no way to know for sure when they'll increase. We do know that a few things need to happen before banks start to lift their term deposit rates, including:

• The Reserve Bank of Australia (RBA) needs to lift the cash rate (it's currently at a historic low of just 0.10%)
• Banks and lenders need to start lifting their home loan rates

Why are term deposit rates so low at the moment?

The main reason term deposit rates are so low is because the official cash rate (which is set by the RBA) is also at a record low. As of December 2021, the cash rate is just 0.10%. This is down from 1.50% in August 2016, which at the time was also a record low.

This has forced banks to lower their home loan rates, which are also at record lows. Because banks are making less money in interest from mortgages with rates so low, they've had to reduce the interest paid out to people with term deposits.

Finder analysis found that term deposits were delivering an average rate of return of 2.45% to Australian savers in early 2017. That was the lowest average return on record since 2002, when the RBA first started collecting this type of data. And compared to rates today, a rate over 2.00% p.a. looks very competitive!

See current term deposit rates

Promoted

Rabobank Term Deposit

2.1% p.a. for 6 months
$0 Account keeping fees
Loyalty bonus rate of 0.10% p.a. available when reinvesting
Small minimum investment of $1,000

Promoted

MyState Bank Online Term Deposit

Earn a fixed interest rate up to 3.35% p.a.
Minimum deposit of $5,000
Short to medium terms available

Promoted

Citibank Term Deposit $10,000

2.25% p.a. for 12 month term
$10,000 minimum opening deposit
No set up or ongoing account fees

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Name	Product	3 Mths p.a.	4 Mths p.a.	5 Mths p.a.	6 Mths p.a.	7 Mths p.a.	12 Mths p.a.	24 Mths p.a.
MyState Bank Online Term Deposit		1.00%	1.30%	2.00%	1.75%	2.15%	3.05%	3.35%	Single or joint account-holders can apply online with MyState's online application process. Pay no account setup or ongoing fees and choose a term length between 3 months and 2 years, with interest paid at maturity.	Go to site More Info	Compare	loading Fetching your data...
Rabobank Term Deposit		0.85%	-	-	2.10%	-	3.00%	3.30%	Suited to customers with deposits between $1,000 and $2,000,000. With a Rabobank Term Deposit you will receive a competitive rate on your deposits and the choice of a 1, 3, 6, 9 or 12 month term.	Go to site More Info	Compare	loading Fetching your data...
Citibank Term Deposit $10,000		1.00%	-	-	1.50%	-	2.25%	-	Suited to customers with deposits between $10,000 and $249,999. This term deposit is for new Citi customers only	Go to site More Info	Compare	loading Fetching your data...
Great Southern Bank Term Deposit Account		1.25%	0.50%	0.50%	2.00%	0.55%	3.00%	3.40%	No account set-up fees or ongoing fees to pay. The Great Southern Bank Term Deposit offers a large range of term lengths from 1 month to five years. Minimum opening deposit is $5,000.	Go to site More Info	Compare	loading Fetching your data...
Bank of Sydney Term Deposit Online Exclusive - $1,000-$500,000		1.45%	1.35%	1.45%	1.90%	1.75%	2.15%	-	$0 monthly account keeping fees. The Online Exclusive Term Deposit by Bank of Sydney offers term lengths from 1 month to 13 months. Withdraw funds before maturity without notice (fees apply).	More Info	Compare	loading Fetching your data...
Illawarra Credit Union Term Deposit $25,000+		-	-	-	-	-	3.15%	3.60%	Limited-time fixed rate offer for customers with deposits of $25,000+. You can choose between a term length of 1 or 2 years with this term deposit offer.	More Info	Compare	loading Fetching your data...
Judo Bank Term Deposit Finder Award		1.15%	-	-	1.85%	-	3.15%	3.75%	Earn a 0.10% p.a. loyalty bonus when you roll over your term. The Judo Bank Term Deposit term lengths range from three months to five years. Minimum opening deposit is $1,000. No account-keeping or set-up fees to pay.	More Info	Compare	loading Fetching your data...

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Why do term deposit rates fall with the RBA cash rate?

The cash rate is Australia’s benchmark interest rate, so any changes the RBA makes to this figure are commonly passed on to the products offered by Australian banks. So while the current low rates are great news for home loan borrowers, they mean that savers are forced to accept minimal returns on their term deposit investments. This is because, when banks reduce the amount of interest customers need to pay on their home loan, they need to make up for this elsewhere so savings accounts are cut back.

However, it’s worth pointing out that a cut to the cash rate doesn’t necessarily mean lower term deposit rates. Sometimes, banks choose to keep their term deposits rates as they are or, in rare situations, increase their rates. There are several possible reasons behind this move, including:

• Putting pressure on smaller financial institutions in the term deposit market
• Generating more funding to cover an increased demand for fixed-rate home loans
• Providing protection against overseas financial turmoil by reducing reliance on overseas funding sources

What other factors affect term deposit rates?

There are several factors that have an influence on how banks set their term deposit rates in addition to the cash rate, including:

• What the competition is doing. Australia’s banking industry is highly competitive and the major banks are always looking for ways to steal customers from their rivals. A quick comparison of term deposit rates across the major banks reveals just how competitive the deposit market is, and a bank will consider how its products compare to those offered by other financial institutions when setting rates.
• The bank’s financial position. If your bank is looking to improve its financial position, it may want to increase the amount of funding it receives from term deposits. In an effort to increase its share of the Australian term deposit market, it might increase the rate it offers on specific term deposits to entice new customers away from its competitors.
• The global economic climate. Banks also make interest rate decisions based on future economic forecasts. For example, a bank may choose to protect itself from overseas financial turmoil by reducing its reliance on funding from overseas sources and at the same time increasing its funding from Australian deposits. In order to do this, it may raise its term deposit rates relative to the competition.

How to get a better term deposit rate right now

Regardless of the RBA’s official cash rate and average term deposit rates, there are still several things you can do to increase the interest-earning capacity of a term deposit:

• Shop around. Although average term deposit rates may be at record lows, there’s still a substantial difference between the lowest and highest rates on offer at any given time. With this in mind, it’s essential to compare a range of term deposit options and shop around for the highest interest rate you can find.
• Look beyond the major banks. Australians have a tendency to remain loyal to their regular bank, which is more often than not a Big Four bank, even if it doesn’t offer the best interest rate. However, some of the best term deposit deals can be found at Australia’s smaller banks, credit unions and building societies, so don’t be afraid to look beyond the Big Four for a good deal.
• Consider investing for longer. You will typically be able to find slightly higher rates on deposits with longer terms than on those with shorter terms. If it’s convenient for you to lock away money in a term deposit for 12 months or more, you will be able to enjoy higher interest-earning power.
• Invest a larger amount. The larger the amount of money you have to invest, the higher the interest rate you will receive. Many banks offer tiered interest rates for term deposits – for example, they may offer a base interest rate for deposits of up to $10,000, a slightly higher rate for deposit amounts of $10,000 to $25,000, and a higher rate again on amounts of $25,000 or more.
• Negotiate. If you’ve got $100,000 or more to invest, many financial institutions may be willing to let you negotiate a better rate. The more money you have to invest, the greater your bargaining power, so don’t be afraid to ask for a better deal.
• Use a high interest savings account instead. Although current term deposit rates are at record lows, things won’t stay that way forever and rates will rise again at some stage. So rather than locking all your money away in a term deposit for an extended period, it may be worth investing a portion of your funds in a high interest savings account so that you can easily access it if term deposit rates go up.