The short version
- A 3 year term deposit locks your rate for three years.
- It suits money you won't need for a while.
- Many pay interest each year rather than at the end.
How term deposits work
You lock an amount away for a fixed term at a fixed rate. You know exactly what you'll earn, whatever happens to interest rates, but you can't add money during the term.
Most banks need 31 days' notice to release money early and reduce the interest they pay you, so only lock away money you won't need.
Pros
- Your rate is locked, so a cut doesn't touch you.
- A known return for three years.
- Interest is often paid yearly, so you see some of it sooner.
Cons
- Your money is locked in for three years.
- If rates rise, you're stuck on the old rate.
- Getting money out early takes notice and costs interest.
Alternatives
- A 1 or 2 year term deposit, so your money is free sooner.
- A ladder: splitting your money across several terms.
- A high interest savings account, if you might need the money.
How to open one
You can open a 3 year term deposit online with most banks in a few minutes.
- Have your ID and tax file number ready. Without a TFN, the bank must hold back tax at the top rate.
- Check who can open it. The bank's eligibility terms say who qualifies.
- Choose how interest is paid. Yearly payments can pay a little less than at the end.
What to check
- The rate for your exact amount and term. Rates often differ for larger deposits.
- How interest is paid: at the end, or monthly or yearly. Monthly interest often comes at a slightly lower rate.
- What happens at maturity. Many deposits roll over automatically at the bank's rate on the day, which may be lower, unless you give instructions.
- That the bank is an Australian authorised deposit-taking institution. Deposits up to $250,000 per person per bank are covered by the government's Financial Claims Scheme.