What are the penalties for breaking a term deposit?

Term deposits are a secure and predictable investment vehicle with guaranteed returns as long – as you leave the money in the account right through to the maturity date.

Sometimes, however, you need access to your money before the fund matures, possibly in a hurry and, depending on the terms and conditions from your bank, this can prove to be expensive.

Early withdrawals can lead to penalty fees or interest rate reductions and so you need to know what these penalties are before you open the term deposit.

If you want to know the fees and penalty charges for closing a term deposit early and you are a customer with the Commonwealth Bank, Westpac, NAB or ANZ, scroll down this page to read more.

What are term deposit ‘early withdrawal penalties’

Many banks will not pay interest on a term deposit that is ‘broken’ early, or they will pay out less interest.

Some banks will ask for 31-days notice if you want to withdraw funds from your term deposit.

If you have fewer than 31 days left on the term, you might not be able to access the funds until maturity.

Some banks do allow immediate access, so check before signing on.

Every bank is different

Each bank has its own schedule of penalty fees and rate reductions, as well as different names, such as prepayment penalties or early withdrawal fees.

Some banks reduce your interest rate on a sliding scale according to how much of the term is left. The nearer to maturity the account is, the smaller the reduction.

Other banks impose a break fee which is worked out by looking at the bank’s current rates, the account rate, how much money you want to withdraw and how close to maturity the account is.

Why can’t I withdraw from a Term Deposit?

When you open a term deposit, you’re signing an agreement with the bank to use your money for its own investments and lending for a set period of time.

If you make an early withdrawal, you are breaking this agreement and the bank isn’t getting the full value out of your money.

The 31 day notice period that many banks have was brought in back in 2015 to help with the liquidity coverage ratio (LCR) under the Basel III reforms. These reforms aim to reduce the financial stresses upon banks by making sure they have enough funds to get through 30 days of any financial upheaval or crisis that may occur.

People in financial hardship may be able to access their term deposit without penalty. Find out more about claiming financial hardship from your bank at InfoChoice or call the National Debt Helpline on 1800 007 007.

Commonwealth Bank term deposit penalties

To make an early withdrawal from a Commonwealth Bank term deposit you will pay a $30 administration fee. There may be a reduction in the interest paid but Commonwealth Bank says this can be negotiated with your branch. 31-days notice might be preferred.

The reduction in interest that Commonwealth Bank applies to early withdrawals from term deposits will vary according to how much time the term deposit had left. According to information collected from Commonwealth Bank published terms and conditions:

If you have between 100 per cent and 80 per cent of the term remaining, you’ll face a 90 per cent reduction in interest.

With 60 per cent to 80 per cent left, the reduction will be 80 per cent.

With 60 per cent to 40 per cent left, the reduction will be 60 per cent.

With 20 per cent to 40 per cent left, the reduction will be 40 per cent.

With 0 per cent to 20 per cent left, the reduction will be 20 per cent.

An example of this is someone investing $5,000 in a 1% pa (hypothetical) 12-month term deposit and deciding to withdraw after six months. This means a reduction of 60 per cent on the interest rate of 1% pa, leaving you at perhaps around 0.6% pa.

Your $50 in interest has now become $30.

See current Commonwealth Bank term deposit interest rates at InfoChoice.

Compare Commonwealth Bank term deposit rates with other banks at InfoChoice.

Westpac Bank term deposit penalties

Westpac also wants 31 days’ notice before withdrawals and applies interest rate adjustments to a similar schedule as Commonwealth Bank.

If you withdraw funds during the first week (seven days) after opening the term deposit, Westpac may pay you no interest at all.

See current Westpac Bank term deposit interest rates at InfoChoice.

Compare Westpac Bank term deposit rates with other banks at InfoChoice.

ANZ Bank term deposit penalties

ANZ uses a similar interest rate adjustment scale as Commonwealth Bank and Westpac. Some ANZ term deposits will not ask for 31-days notice.

You can withdraw funds immediately and your request will be dealt with within two working days.

ANZ also has its Advance Notice Term Deposit which does ask for 31 days’ notice, but you’ll get a higher interest rate – currently 1.60% pa – with this account than you do with ANZ’s regular term deposits.

See current ANZ Bank term deposit interest rates at InfoChoice.

Compare ANZ Bank term deposit rates with other banks at InfoChoice.

National Australia Bank term deposit penalties