What Is a Term Deposit? A Plain-English Guide for Australian Savers

A term deposit is a savings product where you lock a fixed sum of money with a bank or credit union for an agreed period — typically anywhere from one month to five years — in exchange for a guaranteed interest rate.

How it works

You agree to leave the money untouched for the full term. In return, the bank offers a higher rate than a standard savings account. At the end of the term (maturity), you receive your original deposit back plus the interest earned.

Interest can be paid monthly, quarterly, annually, or at maturity depending on the product and term length. Shorter terms under 12 months typically pay at maturity. Longer terms often offer monthly or annual payment options.

How they differ from a savings account

A savings account lets you add and withdraw money freely. A term deposit doesn't — your money is locked in until the term ends. The trade-off is a better rate and a guaranteed return. You know exactly what you'll earn before you start.

That certainty matters when rates are high. Locking in today protects you from a rate cut partway through your term.

Are they safe?

Term deposits held with Australian authorised deposit-taking institutions (ADIs) — banks, credit unions, and building societies regulated by APRA — are protected under the Australian Government's Financial Claims Scheme up to $250,000 per institution per depositor. Even if a bank fails, your deposit is backed by the government.

Most Australians hold well under $250,000 at any single institution, so for the vast majority of savers, term deposits carry no meaningful credit risk.

Common terms available in Australia

Short-term (1–3 months) — useful for parking cash briefly; lower rates
Mid-term (6–12 months) — most popular range, often the best rates
Long-term (2–5 years) — locks in today's rate if you expect rates to fall

The 12-month term has consistently attracted the highest rates across most Australian lenders. Judo Bank, ING, and Rabobank have regularly led this range in early 2026.

What about early withdrawal?

Most banks allow early withdrawal if you genuinely need the funds — but with a penalty. This typically means a reduced interest rate on the amount already earned, sometimes to near zero. Before locking in, make sure you won't need access to the money during the term.

Who are they best suited for?

Term deposits work well when you have a lump sum you know you won't need for a fixed period — proceeds from a property sale, an inheritance, savings earmarked for a purchase in 12 months, or a portion of your emergency fund you want to put to work. They're not suitable as your only savings vehicle, since you lose access to the funds.

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