Breaking a term deposit early normally means giving notice of up to 31 days and accepting a reduced interest rate, and some institutions also charge a fee. The reduction is commonly applied to the whole period the money was held rather than only the remaining part. At maturity the opposite risk applies: the ACCC found approximately 90 to 94 per cent of term deposits are rolled over, into a new term at whatever rate is then on offer.
A term deposit sells certainty and buys it with access. Both ends of that trade have a price, and the expensive one is not the end most people worry about.
Key Takeaways
- Breaking early normally means notice of up to 31 days, a reduced interest rate, and sometimes a fee.
- The reduction is frequently applied to the whole period the money was held, not just the remaining part.
- At maturity, the ACCC found approximately 90 to 94 per cent of term deposits are rolled over.
- Only 14 per cent of surveyed holders moved to a different bank at maturity.
- A rollover takes whatever rate is on offer that day, and the ACCC found term deposit pricing can change quickly with a bank's funding needs.
Breaking early is priced by a clause, not a fee
The instinct is to look for a break fee. The fee, where one exists at all, is usually the smaller half of the cost.
Moneysmart sets out the shape of it. A holder who needs the money before the term ends "may only receive a proportion of the interest earnt, or none at all", "may also need to give up to 31 days' notice", and "may have to pay a penalty fee". Three separate mechanisms, and the first is the one that does the damage.
The reason it does so much damage is where the reduction is applied. An interest-reduction clause commonly reduces the rate across the entire period the money was held, not merely the part of the term still to run. A deposit broken close to maturity therefore does not keep most of the interest it has accrued; the reduced rate is applied retrospectively to the whole holding period and the accrued interest is recalculated downward.
That is why the cost of breaking is poorly approximated by any pro-rata intuition, and why the practical answer is that the money in a term deposit should be money the holder is confident of not needing.
The notice period is a product feature, not an obstacle
A notice period of up to 31 days can read like an administrative nuisance. It is priced.
The ACCC observed that banks were more likely to offer targeted pricing on term deposits, and noted this "may be partly because term deposits are considered a more stable funding source, especially term deposits that have a notice period of at least 31 days".
So the notice requirement is part of what the holder is being paid for. A deposit the bank can rely on for a known window is worth more to the bank than one that might leave without warning, and the rate reflects it. A holder comparing two deposits should read the notice terms as part of the price rather than as fine print attached to it.
The rollover is the larger risk, and it is measured
The moment a term deposit is most likely to cost its holder money is the moment it ends.
The ACCC's inquiry into retail deposits reported that bank data indicated approximately 90 to 94 per cent of term deposits are rolled over, based on all term deposits of any duration that reached maturity during January 2022. Its consumer survey found that only 14 per cent of respondents holding a term deposit moved to a different bank at maturity.
A rollover is not a neutral event. Moneysmart's description is blunt: if the holder does nothing, the deposit "may roll over into a new term deposit", there "may be a fee to get your money out of the new term deposit", and it "could also have a lower interest rate than before".
The rate it rolls into is set by conditions on the maturity date rather than by the rate that has just ended. The ACCC documented how quickly that can move: a bank's term deposit pricing "can change quickly if the bank's funding needs change in the short-term".
Why odd terms sometimes pay more than round ones
The pricing of specials explains a pattern that otherwise looks arbitrary, and it also explains why a rollover date is worth attention.
The ACCC found that banks offer term deposit specials for specific tenors, for example seven or eighteen months, and that these are generally designed to meet the bank's own funding needs by offering higher rates for particular tenors, rather than in response to consumer demand for terms of that length. Special tenors may be chosen so that the new deposits mature in a period where the bank would otherwise have a smaller volume of maturities.
Two things follow for a holder. An unusual term paying better than the terms either side of it is a funding decision rather than a reward, and it can disappear as quickly as it appeared. And a deposit that rolls over lands on whatever the standing rate is that day, which is rarely the special that attracted the original deposit.
Moneysmart's suggested habit is to "review your term deposit a month before it matures". That is a description of when the decision point falls, not a recommendation about what to do with it.
What the guarantee covers, and the part that catches people
Deposits with an Australian authorised deposit-taking institution are protected under the Financial Claims Scheme up to a capped amount per account holder per institution, and the cap applies to all deposits with that institution combined rather than to each account.
The trap is what counts as one institution. APRA is explicit that the limit applies per banking licence, and that some licensed institutions operate several banking businesses under one licence with different trading names. Deposits spread across those brands are added together before the cap is applied, so two names that look like two banks can share a single limit. APRA publishes the list of authorised institutions and the brands operating under each licence.
Where to look next
The mechanics of how term deposit interest is calculated, and how payment frequency is priced, are set out in the guide to how term deposits work. The current published averages by term sit on the term deposit rate tables, the cash rate is the policy rate deposit pricing responds to, and the term deposit entry defines the product.
Sources
- Moneysmart, Term deposits - early withdrawal, notice, rollover behaviour and the deposit guarantee
- ACCC, Retail deposits inquiry final report - rollover share, switching rate, notice periods and term deposit specials
- APRA, Different banking businesses under one banking licence - the guarantee applies per licence, not per trading name
Not financial advice, and not a recommendation of any product or institution. Reviewed by the Tradergy editorial team, September 2026.
Common questions
How much notice do I have to give to break a term deposit?
Commonly up to 31 days. Moneysmart notes that a holder needing money before the term ends "may also need to give up to 31 days' notice", and the ACCC observed that banks treat deposits carrying a notice period of at least 31 days as a more stable source of funding.
Do I lose all the interest if I break early?
Not necessarily all of it, but the reduction can be severe. Moneysmart's description is that a holder "may only receive a proportion of the interest earnt, or none at all", and some institutions charge a fee on top of the reduction.
Is the interest reduction applied only to the remaining time?
Often not. The reduction is frequently applied to the entire period the money was held rather than only to the portion of the term still to run, which is what makes an early break far more expensive than a simple pro-rata calculation suggests.
What happens if I do nothing when the term ends?
Most institutions roll the balance into a new term automatically. Moneysmart warns that a rolled-over deposit "could also have a lower interest rate than before", and that there may be a fee to take the money out of the new term.
How common is an automatic rollover?
Very. The ACCC reported that bank data indicated approximately 90 to 94 per cent of term deposits are rolled over, based on all deposits reaching maturity in January 2022, and its consumer survey found only 14 per cent of term deposit holders moved to a different bank at maturity.