Term Deposit Rates – Early Investing Methods

Term deposit rates allow you to invest your money via one of the most low-cost methods available. Term deposits are a viable option if you don’t want to get into the big leagues of the stock exchange and cryptocurrency investing. Alternatively, these deposits may be able to help you if you struggle to leave your money in a savings account and not interact with it.

But how do term deposit rates influence how successful your investment is? And what other methods are available for accessing extra cash and making your money work for you? From no credit check loans and cash loans to investment properties and pocket investing, there are many options available to you. But let’s begin by discussing what term deposits are and the types of accompanying rates.

Please note that specific ideas and products presented in this article may not be on offer by Monzi or the lenders we work with. This article presents only general information. Consider seeking professional financial, taxation, legal or other advice to check how the information and ideas presented on this website relate to your unique circumstances.

What is a term deposit?

A term deposit shares similarities with a savings account. Suppose you are planning on saving for bigger goals. A term deposit can potentially be your ally in ways a savings account cannot. Essentially term deposits allow you to invest for a specific period at a fixed rate. This can be an excellent low-risk way to invest, as it is improbable that you will lose money.

Typically you can choose to lock your money for a term of one month up to potentially as long as five years. Unfortunately, if you need to access this account before the locked period ends, there is a penalty fee. You may also need to meet a minimum threshold when it comes to investing your money in a term deposit. This amount may be around $5,000. The money you put into a term deposit is under the protection of the Financial Claims Scheme (FSC). This means that your money will be safe if your financial institution happens to fail.

If you would like further information about term deposits, most banks have some information on their websites. A good start point for your research, though, is MoneySmart’s page on term deposits.

What are term deposit rates?

Term deposit rates are the attached interest rates that accompany your term deposit. These rates essentially influence how much return you will receive from your investment. Just with any other rates on a savings account, a higher interest rate will likely be more beneficial to you than a low rate.

This is as term deposit rates are almost always a fixed investment. This means that whatever the market rate is when you deposit your money is what the rate will remain at for the term’s duration. This is a double-edged sword in some ways. You will know what money you will have by the time you can reaccess your cash. If the interest rates dip while your money is in this account, you will have made a good decision. However, if interest rates rise, you will end up missing out on these increases.

Pros and cons of term deposits

Term deposits can be excellent for multiple reasons; however, there are downsides. Having said this, before we discuss term deposit rates, let’s examine the advantages and disadvantages of term deposits.

Pros

  • Temptation removal: A term deposit blocks you from accessing the money you deposit. This stops you from spending your savings and increases your chances of making a return on your investment.
  • Fixed rates: The ability to fix your rates can be useful if you open your term deposit at the right time.
  • Know the return: Because these accounts are fixed, you will know what return you’ll make from day one if you do the calculations.

Cons

  • Withrawal fees: If you need to access the money you deposit, penalty fees are likely to apply. You may also have to provide advance notice for the removal of this money. These deposits are called advance notice term deposits.
  • Rate increase: If you fix your account for a period and rates increase, you can’t take advantage of this.
  • Minimum deposit: If you are just beginning your saving endeavours, the minimum deposit may block you from investing until you have enough money saved.

If you do your research and fix your deposit at a good time, you may find a term deposit to be a valuable option for your money.

What’s the difference between a term deposit and a savings account?

There are several similarities between a savings account and a term deposit. In some instances, term deposit rates can be more influential than savings account rates. However, savings accounts come with their benefits. Whatever money you have in a savings account will typically earn you interest. However, unlike a term deposit, savings account rates are variable instead of fixed. Some of these accounts may even offer you bonus interest rates for meeting specific savings goals. However, interest rates on savings accounts can fluctuate, thereby giving you very little return if rates are low.

On the other hand, however, you can access the money in a savings account whenever you like. For many people, this is far more desirable than not being able to do so. Yet, if you find it incredibly difficult to save your money without touching it, it is understandable that you might be looking to lock your savings away. You cannot add to the funds in a term deposit account, however. This means that if you are looking to put more money away, a traditional savings account may be more beneficial for you.

How to set up a term deposit account?

Before you open any form of term deposit, it is worth being strategic with when you apply. If term deposit rates are at record lows, there may be little point in locking away your money. Instead, consider opening such an account when rates are high; then, you are likely to make a more significant return once your account reaches its maturity age. Maturity age is the point at which your deposit account closes.

To open a term deposit, you will need to be at least 18 years of age. From there, you will need to ensure that you:

  • Meet the minimum deposit requirements
  • Have an Australian address
  • Hold a Tax File Number (TFN)
  • Have an existing account with the bank you open your deposit with

In some instances, you may be able to open a joint term deposit account or a business term deposit account. However, it might be wise to first utilise a term deposit calculator before you begin this process.

Term deposit calculator

The beauty of knowing term deposit rates is that you can calculate how much the account will make you. To do so, simply start by searching for a ‘term deposit calculator’. Multiple banks and financial sites will offer a tool for this purpose. Once you find a calculator that you might like to use, it should ask for a few pieces of information. This will likely include your desired investment term, the deposit amount, the interest rate, and how frequently the interest pays.

It may help to find a calculator provided by the bank you intend to open your deposit with. This is as they usually come with their service options listed in the calculator. However, most times, these tools are available to entice you to use a bank’s services. You do not have to do so. It’s OK to use another banks calculator and then take your business elsewhere. Verify with your term deposit provider that you will earn what you expect to earn before entering any contracts. Ensure that whoever you open a term deposit account with has an Australian credit license before investing.

Why are term deposit rates so low?

Unfortunately, as of 2021, term deposit rates are pretty low. Potentially at record lows. This has to do with several factors that Monzi won’t look too deeply into in this article. One such factor is that the official cash rate is also relatively low. Rates align with the Reserve Bank of Australia’s (RBA) cash rate. Other factors that could impact the term deposit rates include the bank’s financial position and competition. Along with how much you invest, how long your term is, and how frequently the interest pays. Low rates can be excellent if you are looking for a mortgage loan; however, low term deposit rates are not ideal.

This doesn’t mean that investing in a term deposit is a bad idea, however. If you struggle to leave your savings in a savings account without tapping into it, it may still be helpful for you to lock your cash away for some time. Don’t forget that interest rates may begin to rise again during the time your money is locked up, however. Therefore you could be missing out on the interest you would have earned if you’d just left your money in a savings account. If you feel conflicted about managing your savings, consider contacting a financial advisor for advice.

Long term deposit rates

Perhaps you are looking to lock your cash away for as long as possible and set and forget your savings. If you are going to do so, you will want to consider waiting for high term deposit rates. From there, you may want to see what term options are available for such an account. If you find a different bank with a longer-term, you may want to look into how you can link your accounts across banks, if possible.

Keep in mind that if you are looking for long term deposit accounts, you will want to consider how much you are putting away and your current life circumstances. If you have just lost your job, it might not be the best idea to put the majority of your savings into an account that you cannot access for a year. Alternatively, if you are serious about leaving your money somewhere for an extended period without intending to touch it, why not consider the stock market?

This won’t work for everyone and does not guarantee you a profit. However, if you make money off shares, it could earn you more than a low rate term deposit could. Remember to explore all of your options before investing your money anywhere.

term deposit rates

Do you pay tax on term deposits?

As with any annual income that you generate, taxes may apply. Hence, your term deposit interest rates will be a part of your taxes for the financial year. In Australia, you will not have to pay any tax if your income is less than $18,200 annually. If you have any term deposits, you will need to declare these at tax time.

One thing that many people with term deposit accounts may do is automatically roll their interest earnings into another term deposit. If you re-invest your interest instead of accessing it, you will also need to declare this on your tax return. Should you have a joint term deposit account, the Australian Taxation Office (ATO) will assume that your ownership is 50/50 when they tax you. If this is not the case, you may have to provide documentation that proves your account portion.

Do pensioners pay tax on term deposits?

Term deposits and term deposit rates can be pretty helpful for the elderly. They enable seniors to put money away and ensure that they do not burn through it before their time. However, pensioners and the elderly are not exempt from paying tax on term deposit rates. In actuality, this interest can count as a form of income and influence how much of the pension you can claim.

When you reach the age where you can qualify for a pension, you will have to take an income and assets test to verify how much of the payment you can claim. In this instance, any money you have in your term deposit, plus its interest, will count as a part of your assets, decreasing the amount you can claim. However, establishing an account with a short maturity age may help you save money throughout retirement. Alternatively, if you are a younger person, you could put money into a term deposit for a period and then move it into your super savings account. This may provide a boost for your future retirement.

Compare term deposit interest rates

So, you’ve realised that term deposit rates are performing quite strongly and would like to invest your money. What next? Well, you might decide to compare the term deposits available to you. It may be logical for you to compare the term deposits available to ensure that you get the best deal possible before you lock yourself into your contract. Whilst it may be easier to invest with the bank you are already with, this isn’t the only option.

The best way to compare deposits is to use a term deposit comparison tool. To find such a thing, simply search for just that. Several free use sites offer comparison tools for everything financial. Once you pick a site you think is informative, you will receive a side by side comparison of a handful of available term deposits. It should tell you the interest paid monthly for several intervals ranging from three months to two years. On top of this, it may also notify you what type of customer the term deposit is best suited to. A tool like this may help you narrow down your choices. Once you do so, you can then visit the bank’s site for further information.

Who has the best term deposit rates?

It is not for Monzi to say who has the best term deposit rates. This is as it will vary for each person depending on what they might need in a deposit. But, what is a good term deposit rate? The best way to figure this out is to search for the average term deposit rates in Australia. Once you figure this out, you may compare the various options on the market to the average. If you find one better, this could be a viable choice.

Note that if rates are unnaturally low across the board, it could be worth holding off from entering a term deposit contract. Monzi cannot say what a reasonable rate may look like as they are constantly changing. If you need some help with working out when to enter a term deposit, speak with a bank representative or seek some form of financial advice from a professional.

How often do term deposit rates rise?

Unfortunately, this is one of those questions that Monzi doesn’t have the answer to. It can be difficult for even market economists to answer such a question, especially in unprecedented times. Some methods may help you predict it, however. One such method is to keep an eye on the official cash rate. This will allow you to view RBA announcements and potentially anticipate upcoming alterations. The other option is to compare the market. Regularly doing so across the term deposit market may help you determine the current trends.

Keep in mind that this is simply one of those things that are out of your control. In a sense, investing shares traits with gambling, ensure that if you are struggling with any sort of addiction you seek help to fix this. Term deposits may be a low-risk investment; however, spirals can happen.

Can you withdraw before the maturity age?

Yes, there is the option to withdraw your money from a term deposit before the maturity age. However, most term deposits are advance notice term deposits, meaning you may need to give up to a months worth of notice before withdrawing. It is also highly likely that this will incur a penalty fee which may be somewhat hefty. Therefore it is crucial to consider your choice deeply before you lock your money away. Some accounts may even be ‘interest paid at maturity’ accounts if the term is short. Keep this in mind if you wish to take the interest with you.

Alternatively, if you reach the maturity age, you don’t strictly have to withdraw your money. Some accounts may allow you to renew your term deposit and immediately lock in a new interest rate. However, this may mean that your interest rate drops from its fixed rate to the current rate. Consider the new rate before you renew straight away. If you don’t like the new rate, you may wish to hold off. Some banks might offer you the option to place your money in a holding facility. Here your cash will earn variable interest until you give the bank new instructions. Your money will also move here once your term deposit closes; until you collect it.

Investment loans

If you are looking to do some more impactful investing with your money and overlook term deposit rates, investment loans may be helpful. You can take an investment loan to boost the funds you put into any investment you can name. Whether this means borrowing money for an investment property, taking margin loans for more shares, or adding to your cryptocurrency investing.

The options are endless. However, they also come with increased risk. If you are still learning how to invest your money, borrowing to invest straight out of the gates may not be the best idea. This is as you play with more risk once you enter the stock market or the property sector. Not only this, but if you make a loss, you will have to find money elsewhere to repay the loan. If you intend to follow this path, consider the aid of an investment broker to ensure you keep on track.

Personal loans for investing

Whilst personal loans aren’t specifically for investing, this doesn’t mean you cannot use them for such a purpose. You can use a personal loan for almost any need you may have, providing it isn’t illegal. This means that if you wish to keep up with the market and skip the hassle of a traditional investment loan, you may use personal loans instead. Monzi knows that every second counts when trying to secure the best deals on the stock market. Therefore the fact that we may match you to a lender in as little as 60 minutes might be helpful.

Alternatively, if you are simply looking for someone to take a chance on you, a Monzi lender may be able to help. The lenders in our network know that you aren’t the sum of your credit score. Therefore, they may be able to help you with bad credit loans and loans for people on Centrelink. So, if you are looking for small loans to help you with a need, why not try the Monzi lender-finder? All you’ll need is an internet connection to get started.

Monzi and term deposits

Monzi cannot offer you any term deposits or give you specific examples of term deposit rates. However, if you are after fast cash loans, we may be able to help. Or, if you are in a sticky situation, then a lender within the Monzi network may offer you same day loans.

When you are ready to begin your application, all you have to do is scroll up to our loan slider at the top of the page. From there, we’ll need you to tell us how much you are looking to borrow and provide some information about yourself. Then, we’ll do our best to try and match you with a lender in as little as 60 minutes (if you apply within business hours).

But wait! Don’t apply if you still have unanswered questions. Our friendly team is here to help you with your queries. For whatever questions you may have about our service, you can contact the Monzi team at hello@monzi.com.au.

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Example

Loan Amount of $1,000 over 6 months repayable weekly (25 weekly repayments). $1,000 (Principal Amount) + $200 (20% Establishment Fee) + $240 (fees based on 4% per month over 25 weeks) = $1,440 total repayable in 25 weekly installments of $57.60.

Under the current legislation, most small personal loan providers don’t charge an annual interest rate (you’ll know this as an APR) %. The maximum you will be charged is a flat 20% Establishment Fee and a flat 4% Monthly Fee. The maximum comparison rate on loans between $300 and $2000 is 199.43%. The minimum and maximum loan term is 12 months. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

Loan amount

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Loan Amount of $3,000 over 18 months repayable weekly (78 weekly repayments). $3,000 (Principal Amount) + $400 (Establishment Fee) + $1,379.06 (reducing interest) = $4,779.06 total repayable over 18 months with weekly installments of $61.27.

The Annual Percentage Rate (APR) for Secured Medium Loans is 48%. The Typical Comparison Rate is 67.41% p.a. The minimum loan term is 13 months and the maximum loan term is 24 months. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan. Click here to see a worked example.

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