Hot April Term Deposit Rates and Deals
The start of 2024 saw several of the major term deposit players cutting rates, including Bank of Sydney, Judo, and ING. The highest available rate for a one year term now comes from Challenger Bank, at 5.15% p.a. That rate is matched on six month terms by Challenger Bank and Gateway Bank.
Interestingly, the highest rate available on the market right now is 5.25% p.a., offered by Credit Union SA on seven month terms.
Though, the broader pattern continues to be one- and two-year term deposits offering higher interest rates than longer terms (three to five years). According to RBA data, the average one-year term deposit rate dropped slightly to 4.45% p.a. in February, while the average three-year term deposit was steady at 4.00% p.a., only 20 basis points above the average for six month terms (3.80% p.a.).
Here are some of the top term deposit offers this month:
- Gateway Bank Term Deposit - 6 months: 5.15% p.a. (interest paid at maturity)
- Challenger Bank's Term Deposit - 9 months: 5.15% p.a. (interest paid at maturity)
- Challenger Bank's Term Deposit - 12 months: 5.15% p.a. (interest paid at maturity)
All rates and product info correct as of April 2 2024
What is a term deposit?
Term deposits (also known as TDs) are a basic low-risk investment product. With a term deposit, you lock away a lump sum of money in a financial institution for a set term in exchange for a fixed rate of interest. This can be anywhere from one month to five years.
Many term deposits allow you to choose when you want the interest to be paid e.g. fortnightly, monthly, annually, or at maturity (the end of the term).
Term deposits are popular among risk-averse investors who want a near-guaranteed return on their investment.
When your term deposit ends, you typically have two choices: you can either withdraw your cash plus your interest, or choose to roll it over into a new TD which could have a different rate on offer by the lender.
Who offers term deposits?
OnlyAuthorised Deposit-taking Institutions (ADI) can offer term deposits in Australia. These include banks, credit unions and building societies. You can view a list of Australian ADIs on APRA’s websitehere.
How do you compare and choose the right term deposit?
If you do decide to go with a term deposit, there are a number of things to compare before you choose the right product for you.
- The term length - how long do you want to invest for?
- What interest rate do you want? Compare term deposits that offer the term you want and look for one with the highest rate.
- Will you need to withdraw the money at any point in time? Look at the applicable fees and penalties with different lenders.
- Do you want the interest paid at maturity or on a regular basis?
- Are there any products offering compound interest?
- Can you apply for and close the term deposit online?
- Will it automatically rollover at maturity?
- Do you need to open a bank account with the lender along with your TD? Or are you able to open a TD and use your current bank account?
- Is there a minimum deposit you will need to make? They can range from $500 up to $5,000 (in some cases even higher).
Government guarantee on deposits
The Australian Government guarantees deposits up to $250,000 with ADIs. This means if your bank (an ADI) were to collapse, you can recover up to $250,000 of your deposited money (e.g. money in term deposits, savings accounts, home loan offset accounts etc.) with that bank from the government. This applies per person and per ADI, so you can have multiple guarantees with different ADIs, but only one with the same ADI.
Between October 2008 and February 2012, the guarantee covered deposits up to $1,000,000 as a temporary measure to help guide Australia’s banking sector through the Global Financial Crisis.
Because of the government guarantee, term deposits are generally considered to be a very low-risk investment, albeit with low returns.
What are the interest rates on term deposits?
Term deposits earn very similar interest rates tosavings accounts and are heavily tied to the cash rate. Term deposit interest rates are typically fixed, but they tend to vary depending on the term you choose (that’s how long you deposit your money for). Term deposits with longer terms tend to have higher interest rates than ones with shorter terms (to encourage customers to lock their money away for longer periods of time so the bank can use this money for funding).
How is interest on term deposits calculated?
How interest is calculated will depend on a few things, but mainly: the size of your deposit, how long your term is, the interest payment frequency and compounding. We said before that longer-term deposits are more likely to pay higher interest rates. This is mostly true, but the frequency of repayments can lead to varying interest rates on the same term.
Do term deposits charge fees?
The majority of term deposits products are fee-free – you’d be hard pressed to find any that charge monthly account-keeping fees or introductory fees like other products. You’ll find most term deposits do charge a fee or apenalty for early withdrawals though. This can either be a flat fee or a tiered ‘interest rate reduction’ that lowers your fixed rate depending on how long you have left in your term.
| Percentageofthetermelapsed | Interestratereduction |
| 0% to 20% | 90% |
| 20% to 40% | 80% |
| 40% to 60% | 60% |
| 60% to 80% | 40% |
| 80% to 100% | 20% |
What features do term deposits offer?
Term deposits are very basic investment products, so you aren’t likely to find one stuffed with advanced features. The main things to look at is the interest rate and the term you want to invest for. A good term deposit product should offer a variety of terms withdifferent interest rates for you to choose from.
That being said, there are a couple of other factors to consider when choosing a term deposit:
- Is it easy to set up?More and more banks are starting to offer term deposits through online and mobile banking – can you easily log in, open a term deposit and view your balance online?
- Automatic rollover -At maturity, certain providers willautomatically ‘rollover’ your term deposit into a new one unless you expressly tell them otherwise. Make sure you read the terms and conditions before opening a term deposit account and keep track of the end date so you're aware when you need to make a decision.
What affects a term deposit’s interest rate?
Each provider has several if not dozens of term deposit products with varying rates. This leads to ahugevariety of interest rates.
There are as many as seven factors influencing the interest you can earn on term deposits:
- The cash rate
- Market competition
- Banking regulations
- The term
- The amount invested
- The interest frequency
- Early exits
But remember when you take out a term deposit, your interest rate isfixed,which meanslocked in.Hypothetically, the bank could drop its interest rates to 0.01% and you’d still have the same interest rate you did at the beginning until your term has expired.
How do you open a term deposit?
Opening a term deposit can be a straightforward process. You’ll just need to provide: your personal details (name, address, phone number), proof of ID (driver’s license, Medicare card), tax file number and a nominated bank account for your funds to be deposited into at maturity.
You will need to nominate with your bank what term you want to invest for, and the corresponding interest rate. Be aware that some term deposits require a minimum investment too. The minimum is usually around $500-$1,000 but can be in excess of $100,000 for some certain term deposit products.
To actually open the term deposit, you can either do it online or by visiting a local branch. Some institutions might require you to be an existing customer to open a term deposit online.
What are the pros and cons of term deposits?
To summarise all of the above info, here’s a table of the pros and cons of term deposits:
Pros
- They’re generally a safe and stable investment
- You can choose between a large range of term deposit lengths
- Virtually no risk – you have a government guarantee of up to $250,000
- Fixed rates so you know exactly what your returns will be ahead of time
- Your money is locked away, so there’s no temptation to spend it
- Very few have upfront or ongoing fees
- No effort to maintain – set and forget!
Cons
- Because the rate is fixed, your rate won't rise if the cash rate increases
- They’re not a flexible option and have very few features
- Not being able to withdraw your money easily isn’t ideal at times when money is short
- There are hefty interest rate reductions for early withdrawals
- No topping up term deposits with extra cash
