A term deposit locks a set sum of money away for a fixed period, anywhere from a month to five years, at a rate that is fixed the day you open it. In return for giving up access until maturity, you get certainty: the rate cannot fall while your money is in there, no matter what the Reserve Bank does next.
That trade is the whole point. Term deposit rates in Australia move with the RBA cash rate and vary by bank and by term, but once you are locked in, your rate is locked too. This guide explains how they work, what to compare beyond the headline number, and the quiet trap that catches savers at maturity.
How a term deposit works
You hand a bank a lump sum, agree to a term, and agree not to touch it until that term ends. The bank agrees to a fixed interest rate for the whole period. When the term matures, you get your original deposit back plus the interest earned.
The appeal is predictability. An at-call savings account can have its rate cut the week after you open it. A term deposit cannot. If you fix at a decent rate just before the RBA starts cutting, you keep that rate for the full term while everyone on variable accounts watches theirs drift down. The flip side is just as real: if rates rise after you lock in, you are stuck on the lower rate until maturity.
The catch that surprises people is access. Your money is genuinely locked. Most banks let you break a term deposit early, but you typically forfeit a chunk of the interest, and some require notice of around 31 days before they will release the funds. Treat the money as gone until maturity, because for practical purposes it is.
Longer is not always higher
The instinct is to assume a five-year term pays more than a one-year term. It often does not. Banks price each term against where they think rates are heading, so when the market expects cuts, shorter terms can pay more than longer ones.
That makes the term itself a decision, not an afterthought. Locking in a long term to chase a slightly higher rate only pays off if rates fall as expected. If they rise, you have traded flexibility for nothing. For most savers, matching the term to when you actually need the money matters more than squeezing out the last few basis points.
Rates also vary widely between providers. The major banks rarely lead the table. Smaller banks, credit unions and online-only lenders frequently post sharper rates to attract deposits, and they carry the same government deposit guarantee on balances up to the protected cap. It is worth a look across the market before you settle, and you can compare current savings and deposit options to see where the term deposit rates sit against at-call accounts on any given week.
What to compare beyond the rate
The advertised rate is the start of the comparison, not the end. Four things decide what you actually walk away with.
- The rate. Compare like with like: the same term, the same deposit size. Some banks pay a higher rate only above a certain balance, or only for new money.
- The term. Pick the term around when you will need the funds, not the one with the biggest number. Breaking early to access cash usually wipes out the rate advantage you were chasing.
- Interest frequency. Some deposits pay interest monthly, some only at maturity. Paid monthly, interest can compound if it is credited to another account or reinvested, which lifts the effective return. Annually or at maturity, you wait longer for the same money.
- The rollover terms. What happens at maturity is where the real money leaks out, and it deserves its own section.
| Feature | Term deposit | At-call savings account |
|---|---|---|
| Rate | Fixed for the term | Variable, can change anytime |
| Access | Locked until maturity | Withdraw anytime |
| Certainty | High, rate cannot fall | Low, rate can be cut |
| Best for | Money you will not need | A buffer you might dip into |
If you want easy access alongside a competitive rate, a high-interest savings account may suit you better. Our guide to the best savings account in Australia walks through how those stack up against term deposits for everyday savers.
The rollover trap at maturity
This is the one to remember. When a term deposit matures, banks usually give you a short window, often around a week, to tell them what to do with the money. If you do nothing, many banks automatically roll the balance into a new term, frequently at a much lower rate than you would get by shopping around.
You can drift from a sharp rate into a lacklustre one without ever making a decision. The fix is simple: diarise the maturity date, watch for the bank’s notice, and act inside the grace period. Decide deliberately whether to withdraw, reinvest at a fresh rate, or move to another provider.
A term deposit only does its job if you turn up at maturity. Let it roll over on autopilot and the bank decides your rate for you, rarely in your favour.
When a term deposit makes sense
Term deposits suit money you know you will not need for a defined stretch and want shielded from rate falls: a house deposit with a settlement date, a tax bill due next year, or a parked windfall you do not want tempting you. The certainty is the product.
They are a poorer fit for your emergency buffer, where access matters more than a fixed rate, and for money you might want to throw at a mortgage. If you have a home loan, spare cash often works harder in an offset account, where it reduces the interest you pay at your loan rate, tax free, while staying fully accessible.
Remember that term deposit interest is taxable income. The bank reports it, and it is taxed at your marginal rate in the year it is paid, so the headline rate is a before-tax figure. Factor that in when you weigh a term deposit against a tax-free saving such as an offset.
The bottom line
A term deposit is a simple, low-drama product: you lock money away for a fixed term and get a fixed rate in return for giving up access. Compare the rate, the term, the interest frequency and the rollover terms, not just the headline number, and never let a deposit roll over on autopilot. Match the term to when you will need the money, check beyond the big banks, and diarise the maturity date.
This is general information, not personal financial or tax advice. Term deposit rates change with the RBA cash rate and vary by provider, figures here were last checked June 2026, so confirm the current rate and conditions with the bank before you lock anything in, and check the official product disclosure statement.
For the bigger picture on where deposits sit alongside borrowing decisions, our home loans guide covers how the same cash can be working on both sides of your balance sheet.