Is It Worth Locking In Now or Waiting for Rates to Move?

With term deposit rates sitting well above their decade-long average, many Australian savers are facing the same decision: lock in today's rate, or wait in case something better comes along?

The honest answer depends almost entirely on which direction rates are heading. And in the current environment, that direction is fairly clear.

Where rates are right now

By historical standards, the current rate environment has been unusually good for conservative savers. For most of the decade prior to 2022, term deposit rates sat below 2%. Even modest rates today represent a significant improvement over that era.

Why direction matters more than the current number

When deciding whether to lock in, the most important question isn't what the rate is today — it's whether rates will be higher or lower when your deposit matures.

If rates are falling, locking in today secures a higher rate before it disappears. When your deposit matures, you'll likely be rolling into something lower.

If rates are rising, locking in too early means committing to a lower rate while newer deposits attract better ones. In that scenario, a shorter term — so you can roll over sooner — makes more sense than going long.

The Reserve Bank of Australia sets the benchmark cash rate, which term deposit rates broadly follow. When the RBA cuts, lenders typically lower term deposit rates within weeks. The inverse applies too: rate rises are usually passed on quickly.

The real cost of mistiming it

Consider a saver with $100,000 who waits six months expecting rates to improve, but watches them fall 0.5% instead. On a 12-month deposit, that's $500 in lost interest for the year. Over two or three rolling deposits, timing errors compound.

There's also an opportunity cost while you wait: cash sitting in a savings account or offset earns less than a locked-in term deposit. Even a few months at a lower rate chips away at any hoped-for advantage.

When waiting makes sense

There are legitimate reasons to hold off:

• You may need the money soon. If there's a realistic chance you'll need access within the next six to twelve months, locking in creates a problem. Early withdrawal penalties can wipe out the rate advantage entirely.
• You expect rates to rise. If the RBA signals a rate hike cycle, waiting — or choosing a very short term — lets you capture higher rates when they arrive.
• Short-term rates are higher than long-term ones. When six-month rates exceed twelve-month rates, taking the shorter term at the better rate and rolling over can beat locking in long.

The case for locking in sooner rather than later

In a falling rate environment, delay has a cost — each week without a locked-in rate is a week earning less than you could have been. The best rates don't stay available indefinitely — lenders respond quickly when the RBA cuts, and the lag between a decision and a rate drop is measured in days, not months.

Locking in for 12 months or longer near a cycle peak effectively insulates your deposit from cuts that follow. You know exactly what you're earning for the full term, regardless of what the cash rate does in the meantime.

Savers who locked in 12-month deposits at or above 5% in mid-2024 have benefited from this: they secured their rate before subsequent cuts reduced what new deposits could attract.

A middle path: the rate ladder

If you're genuinely uncertain — or have a substantial sum to deploy — a laddering strategy removes the need to time the market at all.

Split the deposit into thirds:

• One third in a 6-month term deposit
• One third in a 12-month term deposit
• One third in an 18 or 24-month term deposit

As each term matures, you reinvest at whatever rates are current. If rates have fallen, only part of your money rolls into the lower environment. If they've risen, you capture the improvement progressively. You also maintain regular access to liquidity as each tier matures.

Laddering won't maximise your return in any single scenario, but it's a robust strategy that significantly reduces timing regret.

The short version

In a falling rate environment, waiting rarely pays off — each cut erodes what you could have locked in. In a rising environment, shorter terms preserve flexibility. The question is which scenario you think is more likely.

Either way, doing nothing has a cost. Cash sitting in a lower-rate savings account while you deliberate is itself a decision — just not a deliberate one.

Compare before you decide: Check current rates across lenders on the RatePulse rate table. Whether you lock in now or wait, knowing what's available today gives you a benchmark to measure against.

This is general information, not financial advice. Consider your personal circumstances before making any investment decision.