Omari Gates
If you're looking to invest your money in Australia, term deposits are a safe and secure option. With a fixed interest rate, you can be sure that your money will earn interest at the same rate throughout the term, even if interest rates drop. The Australian government guarantees deposits up to $250,000 in authorised deposit-taking institutions (ADIs), so your money is protected. Term deposits typically offer competitive interest rates compared to savings accounts, and the longer the term, the higher the interest rate. However, week-to-week rates change, and it's hard to find a term deposit rate above 5% p.a. in the current market. So, what are the highest term deposit rates currently available in Australia, and how do you find them?
| Characteristics | Values |
|---|---|
| Highest term deposit rate | Up to 4.90% p.a. |
| Term length | 1 month to 5 years |
| Interest payment frequency | At maturity, annually, or on a regular basis |
| Interest rate type | Fixed |
| Safety | Low risk due to Australian Government Guarantee Scheme |
| Maximum guaranteed amount | AUD 250,000 per person per bank |
| Early withdrawal | Possible with a fee |
| Reinvestment | Possible with the same or a different rate |
| Tax implications | Interest earned is taxable income |
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What You'll Learn
How to compare term deposit rates
When comparing term deposit rates in Australia, it's important to consider several factors to ensure you choose the right product for your needs. Here are some key considerations:
Term Length
Term deposits typically offer flexible term lengths, ranging from one month to five years. Choose a term that aligns with your plans for the money. If you need access to your funds earlier, be sure to understand the associated fees and penalties, as withdrawing money before the term ends may result in reduced interest rates and additional charges.
Interest Rate
The interest rate is a critical factor in determining the return on your investment. Compare term deposits offering your desired term length and aim for the highest interest rate available. Keep in mind that longer-term deposits tend to offer higher interest rates than shorter-term ones. However, don't solely focus on the highest rate; consider other features that may make a term deposit with a slightly lower rate more suitable for your specific circumstances.
Interest Payment Frequency
Term deposits can offer different options for when interest is paid out. Some common frequencies include maturity (end of the term), annually, semi-annually, quarterly, or monthly. Monthly interest payments may come with a slightly lower interest rate compared to interest paid at maturity. Choose the option that aligns with your financial goals and cash flow preferences.
Reinvestment Options
Some term deposits allow you to reinvest the interest earned, helping you build your savings over time. Additionally, consider what happens when the term ends. Some banks offer loyalty bonuses or other incentives if you roll your deposit over into a new term.
Government Guarantee and Financial Claims Scheme
Ensure that the term deposit is offered by an Authorised Deposit-taking Institution (ADI). Under the Australian Government's Financial Claims Scheme, deposits up to $250,000 per person per institution are guaranteed. This means that your funds are protected even if the bank encounters financial difficulties.
Compound Interest
Look for term deposits that offer compound interest, where interest is calculated based on the principal amount plus any accumulated interest from previous periods. Compound interest can significantly increase your total earnings over time.
Online Application and Management
Check if you can apply for and close the term deposit online. Many financial institutions offer digital platforms that provide convenience and easy access to your account information.
By carefully considering these factors and comparing different term deposit options, you can make an informed decision that aligns with your financial goals and maximizes the returns on your savings.
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Term deposit interest rates vs savings accounts
Term deposit interest rates and savings accounts have their own advantages and disadvantages. Term deposits are a type of savings account that lets you invest funds for a specific term at a fixed interest rate. The interest rates on term deposits are typically fixed, and tend to vary depending on the term you choose. The longer the term, the higher the interest rate. The interest is calculated daily and paid at maturity for terms up to 12 months, and monthly, quarterly, half-yearly or annually for terms over 12 months. During the term, savers cannot withdraw money from their term deposit without penalties applying (fees or interest deductions).
On the other hand, savings accounts allow you to deposit and withdraw money and earn a variable rate of interest. Interest rates on savings accounts are variable, meaning providers can change them at will. While you generally can't transact with a savings account, most allow you to transfer money in and out of it at any time.
Term deposits are considered a very low-risk investment, albeit with low returns. The main reason a customer takes out a term deposit over other forms of savings is a 'fixed or guaranteed return'. With a term deposit, the customer knows exactly what return they will receive from a deposit the moment they put the funds in.
In Australia, the highest term deposit rates are currently up to 4.85% p.a. These rates have seen a raft of cuts recently, with no deposit rates at or above 5% p.a. The highest average interest can be found on 6-month (4.17% p.a.), 9-month (4.01% p.a.) and 1-year (4.10% p.a.) term deposits.
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How to choose the right term deposit
Term deposits are an extremely safe and low-risk investment option. They are insured by the Federal Deposit Insurance Corporation (FDIC) and covered by the National Credit Union Administration (NCUA). In Australia, term deposits are offered by Authorised Deposit-taking Institutions (ADI), which include banks, credit unions and building societies.
When choosing the right term deposit, it is important to consider the following factors:
- Financial goals and situation: Before committing to a term deposit, carefully evaluate your financial situation and goals. Consider whether the returns will help you meet your financial objectives within your desired timeframe.
- Term length: Term deposits typically range from one month to five years. Choose a term that aligns with your plans for the money. Longer terms generally offer higher interest rates, but ensure you won't need to withdraw the funds early, as this may incur penalties.
- Interest rates: Compare the interest rates offered by different ADIs. Term deposits offer fixed interest rates, which means the rate won't change during the term, even if market rates fluctuate. Longer terms usually provide higher rates than shorter ones.
- Institution reputation: Opt for a reputable and well-established financial institution that is government-guaranteed. You can check the list of Australian ADIs on APRA's website.
- Early withdrawal: Understand the applicable fees and penalties for early withdrawal. Term deposits typically charge penalties for accessing funds before the maturity date. If you might need the money sooner, consider more accessible savings options.
- Minimum deposit: Term deposits usually require a minimum deposit, which can vary between providers. Ensure you meet the minimum deposit requirements.
- Renewal and rollover: Familiarise yourself with the automatic renewal and rollover policies of the term deposit. Some providers may offer loyalty bonuses for rolling over into a new term.
- Tax implications: Interest earned on a term deposit is considered income and must be declared on your tax return. Consult an accountant or financial advisor to understand your specific tax obligations.
By considering these factors and comparing different options, you can choose the right term deposit that aligns with your financial goals and provides a secure investment for your savings.
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What happens when the term ends
Term deposits are a good low-risk option for those who want to save and are confident they won't need to access their funds during the term of the deposit. The money is locked away for a set period, usually between one month and five years, and earns interest at a fixed rate. However, this also means that you can't access your money before the term ends without incurring early withdrawal fees.
When the term ends, you will typically be contacted by your provider, and you will have a grace period of around 7-14 days to decide what to do with the money. You can either withdraw the principal and interest, or you can reinvest ("rollover") for another term. If you choose to roll over, you will often be given the prevailing rate, which may be different from your previous rate. You may also be able to add more funds and then reinvest. If you do not provide instructions, your deposit may automatically roll over into a similar term at the current standard rate, so it is important to review your options. Some banks offer a loyalty bonus if you roll your deposit over into a new term.
If you need to withdraw your money before the term expires, you may be required to give 31 days' notice and you will likely receive a reduced rate of interest.
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How safe are term deposits?
Term deposits are generally considered a safe way to invest your money. Term deposits are protected by the Australian government's Financial Claims Scheme (FCS), which guarantees deposits of up to $250,000 per person, per bank. This means that even if the bank collapses, your deposit up to $250,000 is protected and will be reimbursed by the government. This safety net only applies to Authorised Deposit-taking Institutions (ADI) that are regulated by APRA, which includes banks, credit unions, and building societies. You can check if a bank is an ADI through APRA's ADI register.
Term deposits are also safe in the sense that they offer a fixed interest rate, so you know exactly how much you will earn over the term. The interest rate is typically higher for longer-term deposits, encouraging customers to lock in their money for longer periods. However, this also means that your money is tied up and inaccessible during the agreed-upon term, unless you pay a fee to withdraw it early.
While term deposits are considered very safe, it is important to remember that they offer relatively low returns compared to other investments, such as shares. Additionally, the bank will use your deposited money for its own investments and lending practices, which may include industries that cause harm to people or the planet, such as fossil fuels, weapons, tobacco, or gambling. Therefore, it is important to research and choose a bank that aligns with your values and ethical standards.
When considering a term deposit, it is essential to compare different options and choose the right product for your needs. Compare the term lengths, interest rates, fees and penalties associated with early withdrawal. Additionally, consider whether you want the interest to be paid at maturity or on a regular basis, and whether there are options for compound interest. By carefully reviewing these factors, you can make an informed decision about the safety and suitability of a term deposit for your financial goals.
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Frequently asked questions
The highest term deposit rate in Australia is 4.90% p.a. as of August 2023. However, as of May 2025, the highest rate is 4.85% p.a.
To get the highest term deposit rate, you should compare rates from different banks and consider the term length. Term deposits with longer terms tend to have higher interest rates than shorter ones. You can use comparison tools such as Mozo or Canstar to find the current highest rates.
Term deposits are considered very safe due to the fixed interest rate and the Australian Government Guarantee Scheme. This scheme protects deposits up to $250,000 per person per bank in the event of bank failure.
