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Types of term deposits

07 May 2024
• 5 minute read
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Term deposits are possibly the least understood way to save money. Everybody knows how savings accounts work, but many people would struggle to explain what a term deposit even is, let alone the various types there are to choose from.

  • Here’s a breakdown of the key differences between a term deposit and a high-interest savings account

In this article, we discuss the differences between short and long-term deposits, advanced-notice term deposits, no-notice term deposits, interest-paid-monthly term deposits, and low-balance term deposits, and which might be the right one for you.

How do term deposits work?

Before we get into the different types of term deposits, let’s give a quick overview of how they work.

A term deposit is a low-risk form of investment which involves you locking away a sum of money for a set length of time. Because you get a guaranteed rate of interest, you know exactly how much your return will be at maturity.

The downside is that you generally can’t access your money until the end of the term. Some providers might allow this, but doing so will usually incur an interest reduction.

A term deposit’s interest rate depends on the size of your balance and the length of the term. This is usually between one month and five years, although some providers offer them for as long as 10 years.

Additionally, some financial institutions offer higher interest rates to older investors. For example, Great Southern Bank offers Platinum Plus rates for customers aged over 55.

For a deeper dive into term deposits and their benefits, check out the links below:

So now we know how a term deposit works in principle, let’s take a look at the various types you can choose from.

What are the different types of term deposits?

Broadly speaking, there are six types of term deposits available to Australian savers.

These are:

Short-term deposits

Short-term deposits are generally defined as those lasting less than a year. These can be handy if you have reached, or are close to reaching, a short-term savings goal such as an overseas trip. Their ‘set and forget’ nature offers a good way of earning interest on savings while ensuring you don’t spend them.

Long-term deposits

Long-term deposits can last anywhere from 1 to 10 years. They are a solid, hassle-free investment option for those who are sure they won’t need to access their funds for a while. This often (but by no means always) means people who have paid off their home loans and are looking to earn the best possible return on higher deposits.

Advanced-notice term deposits

If you like the idea of a term deposit but are concerned about not being able to access your funds in an emergency, an advanced-notice term deposit might be for you. Having said this, you still have to give at least 31 days’ notice before making a withdrawal, so it depends on what kind of emergency you’re anticipating might arise.

No-notice term deposits

As the name suggests, no such notice period applies to no-notice term deposits. However, the payoff for this level of flexibility is reflected in the interest rate, which is unlikely to be better than you would expect to receive from a reputable savings account.

Interest-paid-monthly term deposits

Term deposits are traditionally paid when the term reaches maturity. Great Southern Bank is among an increasing number of providers offering the choice of having interest paid monthly instead (or annually for terms longer than a year). It’s worth noting that the interest rate is higher if paid at the end of the term rather than monthly or annually.

Low-balance deposits

Great Southern Bank Term Deposits require a minimum of $5,000 investment, but some providers ask for as little as $1,000. It’s even possible to find term deposits with no minimum at all. But to be honest, with a balance of less than four figures, you’re probably better off with a savings account.

Term deposit considerations to help you make the right decision

When choosing the right term deposit for you, here are some factors you should consider.

Term length

Great Southern Bank Term Deposits range from one month all the way up to five years. Terms at the lower end of the scale can be handy if you have reached, or are close to reaching, a short-term savings goal such as an overseas trip. Their ‘set and forget’ nature offers a good way of earning interest on savings while ensuring you don’t spend them.

Longer terms might suit someone with savings they have no imminent plans for. Depending on the size of the investment, it might even be possible to live on the interest while deciding what to do with the lump sum.

Interest rate fluctuations

As anyone who’s been paying attention in the last few years will know, interest rates can change unexpectedly. As term deposits work to a fixed rate, it’s important to understand that you won’t benefit if interest rates go up during the duration of your term.

When is interest paid?

This depends on the term deposit provider but is usually monthly, annually, or when the term reaches maturity. Great Southern Bank Term Deposits offer the choice of having interest paid monthly or at the end of the term, with terms longer than a year being paid annually. It’s worth noting that the interest rate is slightly higher if paid at the end of the term rather than monthly.

Term changes and associated fees

As mentioned previously, many providers don’t allow you to access your money before the term reaches maturity. Others are more flexible but will still typically only allow you to do so at a cost.

At Great Southern Bank, a notice period of 31 days is required to withdraw part or all of your funds before your term deposit matures, unless you are in your 14-day grace period or experiencing financial hardship.

Either way, withdrawing funds before your term matures will incur a cost in the form of an interest adjustment. Full details of this are available in our terms and conditions.

Great Southern Bank Term Deposits

As mentioned previously, Great Southern Bank Term Deposits range from one month to five years and require a minimum of $5,000 investment.

You can see what your interest payments might be by using our term deposit calculator.

Whichever term you go for, you can rest easy in the knowledge that we won’t charge you a cent in monthly account or application fees!

If you have any questions about our term deposits (or anything else), feel free to give us a call on 133 282. Alternatively, you can always pop into your nearest branch for a chat.

Important Information

Great Southern Bank, a business name of Credit Union Australia Ltd ABN 44 087 650 959, AFSL and Australian Credit Licence Number 238317. Conditions, fees and charges apply. This is general information and does not take into account your objectives, financial situation or needs. Consider the appropriateness of the information, including the Terms and Conditions (T&Cs) booklet, before acting on it. The Financial Claims Scheme may apply to this product; refer to the T&Cs for more information.

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