We've talked a little about interest rates on this blog. They are currently at an all time low, which is great if you are borrowing money, but not so flash if you are saving. There is not much benefit to keeping money in cash at the moment, so the prevailing wisdom is to look at investing options. However, you may want to keep your savings in cash if you are looking to buy a house soon. Or maybe you are not ready to dip your toe into the investment waters. If this is you, a term deposit could be a good option.
Overview:
What is a term deposit?
A term deposit is when you lock in your savings for a set amount of time, in return for a slightly higher interest rate than a savings account. Interest is then paid "at maturity" which means after the agreed amount of time. If you want to withdraw your money before the time is up, you lose out on any interest you may have earned.
How long is a term deposit?
Many banks offer short term deposits, anywhere from one month. They can last up to 5 years or more. Generally, the longer the term, the higher the interest you will be offered. Some banks will offer "bonus rates" for term deposits from 3 to 6 months, so it's a good idea to look out for these deals.
Why are term deposit interest rates higher than savings accounts?
Banks are happy to offer a higher interest rate for you to lock in your savings because they can then lend the money to someone else at a higher interest rate, and they know you are less likely to withdraw it. We can't have the banks running out of money! That would be like the proverbial pub with no beer.
Best Term Deposit Rates of 2021
For this article I'll be looking at term deposits of 12 months or less, unless the interest rate is REALLY good. With interest rates so low, it's not a good idea to lock you cash down long term.
Heritage Bank
Interest Rate: 0.80%pa
Term: 8 months
Minimum balance: $1000
Heritage bank are a customer focused bank that started in regional Queensland. I find their interest rates are always really competitive. However, their Online saver rate is 0.65% interest, which is not much higher than the term deposit rate. Heritage is at the top of this list because they offer a minimum balance of just $1000
Teachers Mutual Bank (Unibank)
Interest Rate: 0.90%pa
Term: 12 months
Minimum Balance: $5000
I haven't heard of this bank before, so I looked up some reviews. They have a low rating on product review. I don't automatically find this alarming because often people only leave reviews that they are angry. The reviews tend to be about specific situations, so maybe they need a PR facelift. They do offer great rates though, and I am a fan of smaller banks, so I think they are worth a look. Unibank also offers this interest rate and are owned by the same company, so I have not created a separate listing for them.
BankVic
Interest Rate: 0.85%pa
Term: 12 months
Minimum Balance: $5000
Bankvic started as a bank for police officers and eventually expanded to serve the wider community. They have good interest rates across the board, but their fees are a little steep. I mention this because most of the time if you want to open a term deposit with a bank, you have to have some kind of linked account. It also shows their attitude towards their customers overall. For instance, if you lose your card overseas, there is a $175 replacement fee. A bank charging you those sorts of fees doesn't seem member focused.
Move Bank
Interest Rate: 0.80%pa
Term: 12 months
Minimum Balance: $5000
Movebank started as a railway worker union bank. They are currently online only, but I don't consider them a "neobank" as they started in 1968 and are not a tech startup, like Upbank.
Citi Bank
Interest Rate: 0.75%pa
Term: 3 months
Minimum Balance: $10000
This is a great rate, however the minimum balance required is $10000. This seems a little high, and you would be better off having some of that invested in other ways. Despite having the lowest rate, Citi Bank made this list because they have the shortest term.
Honourable mention
Judobank
Interest Rate: 0.98%pa
Term: 3 months
Why didn't Judobank make it into the top list? Because they are a Neobank. After Xinja folded last year, trust in neobanks is a little shaky. They were offering a very attractive 2.25%, but then suddenly froze customer accounts and had to return the money along with its banking license. So whilst your money is guaranteed by the Financial Claims scheme, having your money frozen is inconvenient at the least.
Worst Offenders
Commonwealth Bank
Interest Rate: 0.08%pa
Term: 3 months
Minimum deposit: $5000
Despite being one of the big banks, and very popular with customers, commonwealth bank frequently have some of the worst interest rates. This is not related to term deposits, but they also have some of the worst account keeping fees. Boo Commonwealth!
Why should I listen to you?
Because I am not affiliated with any bank or financial institution. A lot of comparison sites get paid a commission for referring customers. So those "special deals" you see on their sites are actually being paid for.
The bottom line
At the end of the day, term deposits are not the best way to get the most out of your money. But there is a benefit to keeping some of your money in cash rather than locked in investments. As long as you stick to 12 months or less, term deposits are a good way to get a little bonus interest on your savings. If you are interested in building your savings, have a look at our article How to start saving money.
Happy Saving!
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