InfoChoice guide to finding the best term deposit

Term deposits keep your money relatively safe and secure (including from you) for a set period of time and pay you an agreed fixed rate of interest. The rate of interest might be better than you can easily find from an at–call savings account.

What is a term deposit?

A term deposit is a savings account that’s locked once it’s been funded. You can access your money early if you really need to, but you’ll pay penalties – either an exit fee or the loss of some or all of the interest that you’re earned so far.

The interest rate on the account is fixed at the time you open it and it stays constant for the duration of the term. This means that you’ll know exactly what you’ll be getting back once the account has matured (when the term ends).

Once the account has matured, you can reinvest some or all of the funds at the bank’s stated interest rate, or you can withdraw everything, depending on your financial plans.

What’s good about term deposits

Term deposits are relatively safe, low–risk investment vehicles because their interest rates are fixed and predictable. You know they won’t change, as they might do with variable rate accounts, and the rates are often higher than with at–call savers.

If you have a sum of money that you’re fairly confident you won’t need to dip into in the near future, then a term deposit could be ideal. The fact that you’ll be penalised for early withdrawals often acts as a deterrent to asking and you don’t have to wait for years, as terms start at 31 days.

Comparing term deposits

As is the case with most types of financial product, there’s no single best term deposit account out there. It’s more about finding the product that suits you, your finances and your plans best. Of course, you should look for the highest term deposit rates available to you, but there’s a few other things to think about when you head to your favourite comparison site.

Right now, online bank Judo Bank stands out from the crowd in the term deposit market with market-leading rates now available on its range of term deposits.

The duration of the term deposit

Terms typically range from 31 days to five years, with banks offering slightly different rates on the different terms. Generally, the longer the term, the higher the interest rate.

If you lock your money away for too long, though, you might find you need it and all your “good work” is undone when you have to make an early withdrawal.

The right minimum deposit

Most banks need a minimum opening deposit of $1,000 or thereabouts so you need to be able to meet this comfortably. Other banks have a $5,000 or even $10,000 minimum deposit to get the best available rates.

Don’t be tempted to put more than you can afford into your term deposit, however, as you might need some of it back before maturity.

Think about your ideal duration

If you have a definite length of time in mind, maybe because you’re saving for an event or a holiday, then look at the different rates offered for this term by the different banks. If you don’t have a definite term in mind, look at a few durations to find which one offers you the best balance of time and interest rate.

Paying tax on a term deposit

If you have invested money in a term deposit then you may need to pay tax on the amount of interest you earn. The amount will depend on your overall income, as well as on when you receive your interest payments.

A term deposit versus savings account

The key difference between a term deposit and an at–call term deposit is the fact that you can’t easily access your money when you want to. An at – call saver lets you make withdrawals, usually with no cost or loss of interest rate.

With most regular savings accounts, you can also deposit more money after the initial deposit, whereas a term deposit is locked and set until maturity.

The other big difference is that the interest rates on at–call savers can vary according to the cash rate. The interest rates on term deposits won’t change at all; this is good news if the cash rate falls but can be frustrating if rates rise and you have to wait for the account to mature to move the funds.

The top term deposit rates available to Australian savers in January 2020

Now you know what to look for in a term deposit, here’s a few of the most attractive term deposits available on the market now.

The Judo Bank Term Deposit offers savers who choose a 24–month term an interest rate of 2.20 per cent p.a. with a 0.10 per cent p.a. bonus rate if you roll your term over. The minimum deposit is $1,000 and there’s no account keeping or set -up fees.

The UBank range of term deposits includes the world’s first Green Term Deposit which supports investments in ethical and sustainable projects and a range of term deposits for SMSFs.

The Bank of Sydney Term Deposit is an online–only product that offers terms of one to 12 months. The highest rate available is 1.85 per cent p.a. for four months, with the seven-month option offering 1.80 per cent p.a. plus various rollover options. The minimum deposit is $1,000 and you’ll need to be at least 18 to open this account; there are no account fees.

Compare term deposits from Australia’s banks and credit unions at InfoChoice.

Compare savings accounts from Australia’s banks and credit unions at InfoChoice.

The products compared in this article are chosen from a range of offers available to us and are not representative of all the products available in the market and influenced by a range of factors including interest rates, product costs and commercial and sponsorship arrangements

InfoChoice compares financial products from 145 banks, credit unions and other financial institutions in Australia. InfoChoice does not compare every product in the market. Some institutions may have a commercial partnership with InfoChoice. Rates are provided by partners and taken from financial institutions websites. We believe all information to be accurate on the date published. InfoChoice strives to update and keep information as accurate as possible.

The information contained on this web site is general in nature and does not take into account your personal situation. Do not interpret the listing order as an endorsement or recommendation from us.  You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.

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