What Is a Term Deposit? Beginner's Guide

What Is a Term Deposit?

A term deposit is one of the simplest and safest ways to grow your savings in Australia. You deposit a lump sum with a bank or credit union for a fixed period - anywhere from one month to five years - and in return you receive a guaranteed interest rate that won't change for the life of the term.

When the term ends (called maturity), you get your original deposit back plus the interest earned. That's it. No market risk, no complicated conditions, no surprises.

Think of it like lending your money to the bank for an agreed period. In exchange for locking it away, the bank rewards you with a higher rate than a standard savings account. The trade-off is that you generally can't access the money until the term is up without paying a penalty.

Right now, the best term deposit rates in Australia reach as high as 5.10% p.a. p.a., making them an attractive option in the current rate environment where the RBA cash rate sits at 3.85%.

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How a Term Deposit Works

Opening a term deposit follows a straightforward process:

1. Choose your amount - Decide how much you want to deposit (most banks require a minimum of $1,000–$5,000).
2. Pick your term - Select a lock-in period, typically ranging from 1 month to 5 years.
3. Lock in your rate - The bank offers a fixed interest rate for your chosen term. Once you accept, this rate is guaranteed.
4. Wait for maturity - Your money earns interest over the term. You generally cannot access it early without a penalty.
5. Collect your return - At maturity, you receive your original deposit (the principal) plus all earned interest.

It's a set-and-forget approach - no need to meet monthly conditions, maintain a minimum balance each month, or worry about rate cuts.

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Key Terms Explained

If you're new to term deposits, here are the essential terms you'll encounter:

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How Interest Is Calculated

Term deposits use simple interest, which makes the maths easy to follow.

Formula:

Interest = Principal × Rate × (Term in days ÷ 365)

Example: You deposit $10,000 at 5.00% p.a. for 12 months (365 days):

$10,000 × 0.05 × (365 ÷ 365) = $500

At maturity you'd receive your $10,000 back plus $500 in interest, totalling $10,500.

Interest Payment Frequency

When you open a term deposit, you'll usually choose how often interest is paid:

For terms of 12 months or less, most banks only offer interest paid at maturity. Longer terms typically give you the choice.

Tip: Interest paid at maturity usually earns a slightly higher effective return because the bank holds your interest for longer.

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Current Term Deposit Rates

The best term deposit rates available in March 2026 are shown below. The top 12-month rate is currently 4.93% p.a. p.a.

Rates change frequently. For the full, up-to-date comparison across 66++ providers, see our Best Term Deposit Rates in Australia.

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Minimum Deposits

Most Australian banks and credit unions require a minimum deposit of $1,000 to $5,000 to open a term deposit. However, some institutions accept amounts as low as $500.

Here's a general guide:

There's usually also a maximum - commonly $1,000,000 to $5,000,000 - though this rarely matters for everyday savers. If you're investing through an SMSF, higher caps may apply. See our SMSF Cash & Term Deposits Guide for details.

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What Happens at Maturity?

When your term deposit matures, you typically have three options:

1. Withdraw the full amount - Take your principal plus interest and move it wherever you like.
2. Roll over (reinvest) - Lock the money into a new term deposit, often at the current prevailing rate.
3. Partial withdrawal - Some banks let you withdraw part of your funds and reinvest the rest.

The Grace Period

Most banks give you a grace period of around 7 business days after maturity to decide what to do. If you don't act within this window, the bank will usually auto-roll your deposit into a new term of the same length at whatever rate is on offer - which may be lower than your original rate.

Important: Set a calendar reminder a few days before maturity so you don't miss the grace period. For more tips, read our full Term Deposit Maturity Guide.

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Early Withdrawal: What Are the Penalties?

Life doesn't always go to plan. If you need your money before the term ends, you can usually request an early withdrawal - but it comes at a cost.

Common penalties include:

• Reduced interest rate - The bank may apply a significantly lower rate (often the at-call rate) to your entire deposit.
• Interest forfeiture - You may lose some or all of the interest earned so far.
• Notice period - Most banks require at least 31 days' written notice before releasing the funds.

The exact penalty varies between institutions, so always read the terms and conditions before locking your money away. If you think you might need access to your funds, a high-interest savings account may be a better fit.

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Are Term Deposits Safe?

Term deposits are among the safest investments available in Australia. Here's why:

• Government guarantee - Deposits up to $250,000 per person, per authorised deposit-taking institution (ADI) are protected by the Financial Claims Scheme (FCS). This means even if the bank fails, the government guarantees your money.
• No market risk - Unlike shares or property, your principal cannot go down. The rate is fixed and guaranteed.
• Regulated providers - All ADIs (banks, building societies, and credit unions) are regulated by APRA, Australia's prudential regulator.

If you're depositing more than $250,000, consider spreading it across multiple ADIs to stay within the FCS guarantee at each. Our Term Deposit Laddering Strategy guide explains how to do this effectively.

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Term Deposits vs Savings Accounts

Not sure whether a term deposit or a high-interest savings account is right for you? Here's a quick snapshot:

If you value certainty and guaranteed returns, a term deposit is hard to beat. If you need flexibility and quick access, a savings account is the better choice.

For a detailed breakdown, see our Term Deposit vs Savings Account comparison. You can also compare today's top savings accounts and term deposits side by side.

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Who Should Consider a Term Deposit?

Term deposits aren't for everyone, but they're an excellent choice for certain savers:

• Retirees and pre-retirees - Predictable income with zero market risk. Ideal for capital preservation.
• Goal savers - Saving for a holiday, car, or house deposit? Lock the money away so you won't be tempted to spend it.
• Guaranteed-return seekers - If you want a known return without watching the market, term deposits deliver exactly that.
• Impulse spenders - The lock-in period acts as a built-in spending barrier, keeping your savings on track.
• SMSF trustees - Term deposits are a popular low-risk allocation within self-managed super funds.

Term deposits are less suitable if you might need emergency access to your cash, or if you're comfortable taking on more risk for potentially higher returns through shares or property.

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How to Open a Term Deposit

Opening a term deposit in Australia is quick and can usually be done entirely online:

1. Compare rates - Use our term deposit comparison page to find the best rate for your preferred term.
2. Check eligibility - You'll generally need to be 18+ and an Australian resident. Some products require you to hold an existing account with that bank.
3. Verify your identity - Provide 100 points of identification (e.g. driver's licence + Medicare card). Most banks verify digitally.
4. Provide account details - You'll need a BSB and account number for the account that will fund the deposit and receive interest.
5. Transfer funds - Deposit your lump sum. Most banks accept electronic transfers; some allow BPay.
6. Confirm your term and rate - Review the term length, interest rate, and payment frequency, then confirm.

Most online applications take under 10 minutes to complete, and many banks will have your term deposit active within the same business day.