A term deposit locks a fixed sum with a bank for a fixed period at a fixed interest rate. The rate does not change during the term, and withdrawing early normally means notice and a reduction in the interest earned. Deposits are covered by the government guarantee up to a limit per person per institution.
A term deposit is one of the simplest products in Australian banking, which is why the questions people actually have about it are rarely about the concept and almost always about the edges: what breaking one costs, what happens at maturity, and how the guarantee works. This guide covers the mechanics. It contains no rates and no product recommendations. For current published averages, see the term-deposit rate page.
What a term deposit is
You give a bank or other authorised deposit-taking institution a fixed sum for a fixed period, and it pays a fixed rate of interest for that period. The three things that are fixed are the amount, the term and the rate. Nothing about that arrangement changes while the term runs, which is the entire point of the product: certainty, in exchange for giving up access.
Terms commonly run from one month to five years. The minimum deposit varies by institution.
How the interest is worked out
Interest on a term deposit is quoted as an annual rate and calculated on the balance for the days the money is held. Two details change what you actually receive.
Payment frequency. Longer terms usually offer a choice: interest paid monthly, quarterly, annually or at maturity. Money paid to you monthly can earn interest elsewhere, so it compounds if you put it somewhere that pays. Money left until maturity does not compound within the deposit unless the institution states that it does. Institutions frequently price the monthly option a little below the at-maturity option, which is the trade-off being made visible.
Term length and the annual quote. A rate quoted as an annual figure on a six-month term earns roughly half of it over the term, not the full amount. This sounds obvious and is one of the more common misreadings of a headline number.
The term-deposit calculator works both simple and compounding cases so you can see the difference for a given amount and term.
Breaking a term deposit early
This is the part that most often surprises people. A term deposit is not locked in the sense of being inaccessible, but accessing it early has two costs.
- Notice. Institutions commonly require advance notice before releasing funds, in many cases up to 31 days. That period is set by regulation covering how deposits are treated for a bank's liquidity, so it is not simply a policy an institution chooses to waive.
- An interest reduction. The rate is reduced, often on a scale tied to how much of the term has elapsed. The reduction is frequently applied to the entire period the money was held, not only to the remaining portion, which can cut the effective return sharply.
The practical consequence is that a term deposit suits money you are confident you will not need. Splitting a sum across several deposits with different maturity dates is a common way to keep part of it reachable sooner. That is a description of a structure people use, not a suggestion to use it.
Maturity and rollover
At the end of the term the institution normally contacts you with the options: withdraw, roll into a new term, or change the amount. If you do nothing, most institutions roll the balance automatically into a new term at whatever rate is then on offer.
That default deserves attention, because the new rate is set by market conditions at the maturity date and can differ substantially from the one that just ended. A rollover happening silently is the mechanism by which money ends up on a rate nobody chose. Note the maturity date when you open the deposit.
Many institutions offer a short grace period after maturity, commonly around a week, in which you can change the decision without penalty.
The government guarantee
Deposits with an Australian authorised deposit-taking institution are protected by the Financial Claims Scheme, which is administered by the Australian Prudential Regulation Authority. If the institution fails, deposits are protected up to a capped amount per account holder per institution.
Two details matter more than the headline.
- The cap applies per institution, not per account. All your deposits with the same institution count together towards it.
- Brands can share a licence. Several banking brands operate under one banking licence, and where they do, the cap applies once across all of them. APRA publishes the list of authorised institutions and the brands operating under each licence.
Term deposits alongside other options
A term deposit trades access for certainty. A savings account does the reverse: the rate can change at any time, and the money is available. An offset account does something different again, reducing loan interest rather than earning deposit interest.
Which suits a given situation depends on when the money is needed and what else it could be doing. Tradergy does not recommend products or institutions, and nothing here is a suggestion to open, hold or close anything. The Australian Securities and Investments Commission publishes general guidance on deposit products through Moneysmart.
Where to look next
- Term-deposit rates - published averages from the Reserve Bank series.
- Term-deposit calculator - simple and compounding, for a given amount and term.
- Savings account rates - the variable-rate comparison point.
- Term deposit and comparison rate - the definitions in short form.
General information about how term deposits work. Not financial advice, not a recommendation of any product or institution, and not a suggestion to invest. Tradergy keeps no account and collects no personal data. Reviewed by the Tradergy editorial team, September 2026.
Common questions
What happens if I need my money before the term ends?
You can usually break a term deposit, but institutions generally require notice, commonly up to 31 days, and reduce the interest you earn. The reduction can apply to the whole term rather than only the remaining part, so the effective return can fall well below the headline rate.
Is a term deposit guaranteed by the government?
Deposits with an Australian authorised deposit-taking institution are covered by the Financial Claims Scheme up to a capped amount per account holder per institution. The cap applies across all your deposits at that institution combined, not per account.
What happens when a term deposit matures?
Most institutions notify you in advance and, if you do nothing, roll the money into a new term at the rate then on offer. That rate can differ substantially from the one you had, so a rollover is worth a decision rather than a default.
Is interest paid monthly or at the end?
Both exist. Longer terms often offer a choice of monthly, quarterly, annual or at-maturity payment. More frequent payment lets interest compound if it is paid into another interest-bearing account, but institutions often price frequent-payment options at a slightly lower rate.