Compare one-year term deposits

What is a term deposit?

Term deposits are essentially interest-earning bank accounts where the cash cannot be accessed over a set period of time without providing notice or incurring a fee.

With a term deposit, you deposit a lump sum of money in a financial situation for a set term in exchange for a fixed rate of interest. When the term is over, you receive your deposit back plus the interest earned.

You can generally lock in an interest rate for terms as short as one month to as long as five years. Whatever term you choose, term deposits can remove the temptation to dip into savings and provide a fixed rate of return, defending your cash from the ups and downs of the market.

What is a 12-month term deposit?

As the name suggests, a 12-month term deposit is a bank deposit that locks away your money for one year, which is the period of time known as the term. This means for one year, you generally won’t be able to touch the money you deposit, but in exchange you will earn a fixed amount of interest over this period.

For example, a 4.00% p.a. term deposit for 12 months would return $400 in interest over the term if you deposited a total of $10,000.

Twelve-month term deposits are considered to be the upper limit for ‘short’ term deposits. Other terms considered short-term offered by banks range from one-month to 11 months, with 6-month terms usually being the most popular.

Any longer than this and you’ll be getting a ‘long' term deposit, such as:

• 18 months
• Two years
• 30 months
• Three years
• Four years
• Five years

While some banks offer term deposits for up to seven years, five is generally the longest term offered to the general public.

What interest rate can you get with a 12-month term deposit?

While the rates in offer for a 12-month term deposit may not be quite as high as what is offered with a five year term deposit, you'll likely receive a higher interest rate than what is offered with a shorter term deposit i.e. three or six months.

Essentially, it all comes down to what you're after. Do you want a shorter term deposit with a lower interest rate so you can access your funds sooner? Or are you looking for a more permanent option like a 12-month term deposit? To start your search, compare some of the highest interest rates for term deposits from leading Australian banks.

So how do 12-month term deposit rates compare to other terms?

The general rule is ‘the longer the term the higher the rate.' However, it pays to do your own due diligence to find out what different lenders are offering for different terms and whether this is the case.

Why should you pick a 12-month term deposit?

Perhaps the biggest reason to pick a one-year term deposit is that it could provide the best of both worlds. One-year is short enough to be considered a short-term investment, while the interest rates on offer are equal (if not better) than some longer-term deposits. Also, with a 12-month term deposit, you're less likely to fall to temptation and break the term before its end date, which can incur hefty fees and interest deductions.

What about shorter terms?

Short term deposits (terms shorter than a year) often earn less interest but can still be a quick and easy way to earn something on your spare cash. They can be good for short-term savings goals, like for a holiday or for Christmas presents, but you could argue savings accounts are also good for this while being a more flexible product.

Short term deposits also mean you might not have to worry as much about potentially breaking from the term deposit early, which is a flaw with longer terms.

Should you pick a longer-term deposit?

Term deposits are available from most banks for terms of up to five (and sometimes seven) years, which is a long time to have your money locked away. Should you need this money in an emergency, for example, you’d probably have to suffer an interest rate reduction relevant to how much of your term has elapsed, as well as providing at least 31 days of notice to the bank.

A common example of how banks lower your interest rate if you decide to cash out from a term deposit early.

But there are benefits to long-term deposits. For one, it’s possible to get higher interest rates, and two, they’re also useful for avoiding interest rate cuts. If you took out a two-year term deposit at 4.00% p.a. and interest rates decreased by 25 basis points in the second year to 3.75%, you'd still be locked in with the initial rate. However, this also means you could miss out on potential interest rate increases.

The pros and cons of short vs long-term deposits

Here’s a summary of the advantages and disadvantages of short and long-term deposits:

Both short and long-term deposits can automatically roll over when the term expires, which may be a bad thing if you don’t want to commit to another one!

Savings.com.au’s two cents

A one-year term deposit could be a good choice for someone looking to safely invest their money and get a decent return on it.

Before committing your money to a term deposit, ask the following questions:

• What are you saving for?
• What kind of interest rate are you after?
• How long can you afford to not touch that money for?
• And what will happen to the cash rate while the money is in there?

The most important thing with a term deposit, however, is to get a good rate. Our list of highest term deposit rates is a good place to start comparing what's on offer from different lenders.