A term deposit is the simplest fixed-return savings product in Australia — fixed rate, fixed term, government-guaranteed up to $250k. This calculator shows your maturity value, interest earned, and effective yield against the comparison alternatives.
How term deposits work
You deposit a lump sum with a bank for a defined term — typically 1, 3, 6, 9, 12, 24, 36, 48 or 60 months. The bank pays a fixed interest rate over the term. At maturity, you receive your principal plus interest (or interest paid periodically along the way for longer terms).
You can't withdraw early without a penalty. The penalty is usually a reduction in the interest rate by 0.50%–2.50% depending on how early you break the term, often combined with a 31-day notice requirement. For practical purposes, treat the money as locked up.
How interest is calculated
Three structural variables affect the final number:
1. Rate. Advertised as a per-annum rate (e.g. 5.20% p.a.).
2. Term. Pro-rates the rate against the period (e.g. 5.20% p.a. over 6 months = 2.6% earned over the period before compounding).
3. Payment frequency. When interest is paid:
- At maturity — most common for terms ≤ 12 months. No compounding within the term.
- Monthly / quarterly / semi-annual / annual — applies to terms ≥ 12 months. Each interest payment can be compounded if you roll it back into the TD or paid out as cashflow.
For TDs paid at maturity, simple interest applies: principal × rate × (days / 365). For TDs with periodic payment, you can compound by re-investing the interest into the same TD.
Worked example
$50,000 deposit, 5.20% p.a., 12-month term, paid at maturity:
- Interest: $50,000 × 5.20% = $2,600
- Maturity value: $52,600
- Pre-tax yield: 5.20% effective
Same deposit but with monthly interest paid out:
- Monthly interest: $50,000 × 5.20% / 12 = $216.67
- 12 payments → $2,600 paid out across the year
- If reinvested into the same TD at the same rate, effective yield rises to ~5.32% (compounding adds ~12 bps)
Tax on term deposit interest
Interest is taxable income at your marginal rate. Two practical points:
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Provide your TFN to the bank. Without a TFN, the bank withholds 47% PAYG against your interest. The amount is later refunded via your tax return, but it's a cashflow drag.
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Bonus saver vs TD after tax. A 5.50% bonus saver and a 5.20% TD are close to equivalent at most marginal rates after considering the lock-in. At 32.5% marginal rate:
- 5.50% bonus saver = 3.71% after tax
- 5.20% TD = 3.51% after tax
- Bonus saver wins after-tax AND keeps the money liquid
For most owner-occupier savers, a bonus saver beats a TD on yield AND liquidity. TDs win when (a) you've maxed your bonus saver bonus tier, (b) you want rate certainty over a longer horizon, or (c) the lock-in is itself the point (behavioural commitment).
Government guarantee — the FCS
Australian deposits at authorised deposit-taking institutions (ADIs) are covered by the Financial Claims Scheme, which guarantees up to $250,000 per account holder per ADI in the event the bank fails. The guarantee covers:
- Term deposits
- Savings accounts
- Transaction accounts
The guarantee does NOT cover:
- Investments in shares, bonds, ETFs, managed funds
- Superannuation
- Term life or general insurance
If your total deposit at any one bank exceeds $250,000, split across multiple ADIs to stay within the guarantee at each. The calculator can model multiple TDs across banks for comparison.
TD ladder strategy
Rather than locking all your savings in a single TD, a "ladder" splits the cash across multiple maturity dates. Example with $300k:
- $100k in a 12-month TD
- $100k in a 24-month TD
- $100k in a 36-month TD
Every 12 months, one TD matures and you can either spend it or roll it into a new 36-month TD at the then-current rate. The ladder gives you rolling liquidity (1/3 maturing each year) plus exposure to the 36-month rate (typically the highest). It's a defensive strategy for retirees or anyone with a large cash position who doesn't want to time interest rate movements.
When to choose TD over alternatives
A term deposit is the right fit when:
- You have a defined-date use for the money (e.g. settlement in 6 months)
- You want rate certainty in a falling-rate environment
- You want zero risk (FCS-guaranteed)
- You don't want the temptation of liquid cash (behavioural lock-out)
A bonus saver, ETF, or property is the better fit when:
- Liquidity matters
- You're saving for >5 years (TDs underperform equities long-term)
- The bonus-saver after-tax yield exceeds the TD rate
Frequently asked questions
Is interest paid monthly or at maturity?
Depends on the term. Most short-term TDs (under 12 months) pay interest at maturity. Longer terms (1+ years) typically offer monthly, quarterly, semi-annual or annual interest payments. Monthly compounding within the TD produces a slightly higher effective yield than annual; the calculator handles both.
Do I pay tax on term deposit interest?
Yes. Term deposit interest is taxable income at your marginal rate, declared in your annual tax return. The bank reports the interest to the ATO automatically. If you don't provide a TFN, the bank withholds 47% PAYG against the interest — always provide your TFN to avoid this. The calculator shows the pre-tax return; net return depends on your marginal bracket.
Is a term deposit better than a savings account?
Sometimes. Bonus-saver and high-interest accounts often match or beat headline TD rates and let you keep the money liquid. The case for TDs: rate certainty over the term, behavioural lock-out (you can't impulse-spend it), and slightly higher rates for longer terms. Check Mozo, Canstar or RateCity for current TD vs savings rate comparisons before locking up cash.
What happens if I withdraw early?
Banks charge an early withdrawal penalty — typically 0.50%–2.50% reduction in the interest rate, depending on how early you break the term. Some banks require 31 days' notice for early withdrawal. The penalty often eliminates the interest you've earned to date. Treat term deposits as locked away — only use money you're confident you won't need.
Are term deposits safe?
Australian term deposits at authorised deposit-taking institutions (ADIs) are covered by the Australian Government's Financial Claims Scheme up to $250,000 per account holder per ADI. So $250k at one bank + $250k at another bank = $500k of guarantee. The guarantee covers your deposit and interest accrued. As long as you stay within the limit at any single institution, your money is government-backed.
Should I split a large deposit across multiple banks?
If your total exceeds $250,000, yes — to stay within the FCS guarantee. Splitting also lets you ladder maturity dates (e.g. $100k for 6 months, $100k for 12 months, $100k for 24 months) so you have rolling liquidity. The calculator supports modelling multiple TDs to compare combined interest.
Are TDs deductible if held inside a SMSF?
Term deposit interest earned inside a SMSF is taxed at 15% concessional rate during accumulation phase, or 0% in pension phase. The TD itself isn't 'deductible' in the conventional sense, but the lower tax rate on the interest is the SMSF advantage. Talk to a SMSF adviser about how TDs fit into the fund's overall asset allocation.
What's the difference between simple and compound interest?
Simple interest: interest paid on the original principal only, regardless of term length. Compound interest: interest paid on principal plus accumulated interest, so each compounding period interest earns interest. Most Australian TDs use simple interest within a single term; compound effects emerge when you re-invest interest payments or roll over the TD at maturity. The calculator handles both.
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Last updated: 2 May 2026