You might have heard the term, term deposit (ha!) from your bank, or your relative who’s locked most of their money away in one (and the other bit under their mattress)..

A term deposit is a savings account account that locks away your cash for a set period of time (usually between one month - five years), earning a fixed interest rate for that period. 

Term deposits are a bit like a snooze button for your savings - except when you wake up, they’re a little stronger than before. 

How is a term deposit different from a regular savings account?

Unlike the interest rate on standard savings accounts which fluctuates with market conditions, the interest rate on a term deposit is locked in place until the term is over.

But while you can withdraw from your regular savings account in an instant, with a term deposit your money is quite literally locked away so that you can’t touch it for 3 months, 12 months or even longer.

See Term Deposit products

What are the advantages of a term deposit?

1. They’re a middle ground investment

For anyone looking for a ‘no effort’ investment, term deposits may be the thing for you.

When your money is sitting in a savings account, it’s super accessible to you, but it’s also kind of collecting dust with (generally) a lower interest rate.

Especially when there are better ways that money can be working for you.

On the other side, you’ve got investments like stocks and property, which might offer better returns, but can be risky and involve a decent amount of work.

Term deposits can be a good middle ground, and a more profitable use for your money if you’re looking for something somewhere between a savings account and the stock market.

1. They’ll curb your splurge

You can also think of term deposits as a safe way to stash cash for a short period of time.

If you’re saving up for a car or a house deposit, locking a portion of your funds in a term deposit can help you speed up the savings process by earning a better rate.

And you can’t be tempted to spend that money on other, potentially less worthy purchases.

2. They’re a protected investment

Not only do you have a guaranteed interest rate with a term deposit, but thanks to the government’s Financial Claims Scheme, in the extremely rare case that your bank fails, the government will guarantee your money back up to $250,000.

‍What are the disadvantages of a term deposit?

1. You’re locking away your cash without the key

If you need to access your cash for some reason, it’s not the easiest thing to do with a term deposit, because you’re effectively breaking a contract where you said you’d lock your money away.

If a term deposit is broken (ie. you demand to take your cash out), many banks will not pay interest, pay less interest, or even charge you a fee.

You can’t deposit additional money into your term deposit until the term is complete either, so you’ll need to have a separate account for your day to day transactions.

2. You may not benefit from interest rate rises

If the interest rates on savings accounts go up while your cash is in a term deposit, you lose out on that extra interest.

 Of course, if interest rates are dropping, you’ll be winning, so it’s a bit of gamble.

For example, right now, many savings accounts have a higher interest rate than term deposits - but they can drop at any moment.

See Savings products

3. Your money could be working harder for you

Term deposits are low risk, but they’re considerably low returns when you compare them to more substantial investments like shares or property.

In the 10 years between 2013 and 2023, the ASX200 has returned 9.1% per annum on average.

In comparison, 5 year term deposits currently offer rates between 4.6% and 5.2%.

If you’re keen to explore term deposits for yourself, you can check out some of the latest ones on offer here.