What is a bank term deposit?

A term deposit is where you make a deposit with a bank, but for a specific period of time, agreeing that you won't withdraw your money before that agreed time period has elapsed.

What's the difference between a term deposit and a time deposit?

Nothing. It's all a matter of geography. The same kind of bank account is called term deposit in Australia and a time deposit in the US.

Why should I open a bank term deposit?

Bank term deposits offer high interest rates when compared to regular savings account, be they online bank accounts or otherwise.

So how does a term deposit work?

A term deposit pays high interest rates and gives security for a pre-arranged period of time. The interest rates paid vary according to the size of the deposit and the length of the fixed term. They are often divided into short term deposits and long term deposits for ease of identification.

Is there an age restriction on opening a term deposit?

This varies from bank to bank. Many seem to require their term deposit customers to be 18 years of age before they can use the service, whilst we found one which stipulated 12 as the qualifying age. We suggest that you check with the bank you are considering opening a term deposit with before you go ahead.

How many bank term deposits can I have?

As many as you like, as long as you fulfill the application requirements and are happy to have your money tied up for a fixed term.

What is the minimum amount for a bank term deposit?

The first tier of term deposits starts at $0 to $4999, but it depends on the bank. Some banks like their customers to deposit a minimum of $5000 in their term deposits. Check online at bank's websites and term deposit comparison websites to see what the minimum deposit amount is for the term deposit that you're considering.

Can I have a term deposit for my business?

No. Bank term deposits are purely a personal banking service.

How long does it take to open a term deposit?

Most banks should have your application processed within 3 working days.

Do I have to be an existing customer at a bank to open a term deposit with them?

You can open a bank term deposit with any bank as long as you have the funds, though most banks will specify that you have an Australian bank account open with a bank somewhere in the country.

How long are the fixed terms?

You need to check directly with the bank, but most term deposits run for between 1 month and 5 years.

Are there any fees or hidden costs?

Again, you need to look carefully at the terms and conditions of the particular term deposit that you are assessing. Having said that, since the start of the global financial crisis and the resulting tumbling interest rates, bank term deposits have become a highly competitive type of bank account and this has resulted in many banks waiving fees and set up costs in an attempt to attract new customers.

But there must be some fees.

Not useless you break the terms of the fixed term agreement. If you withdraw your money early, you may well lose interest payments and incur costs.

What happens if I need my money earlier that expected?

If you choose to withdraw your money before the agreed term deposit period has elapsed you may well face administrative fees and early withdrawal penalties. You are also likely to miss out on interest payments.

What if interest rates rise?

You will not benefit from the rise. A term deposit is runs at a fixed rate, whatever happens else where in the banking world. When you open a term deposit you are locked into a fixed rate for a fixed period of time and nothing can change that. If interest rate are low and the stock market is volatile, as they are at present, term deposits are attractive as they offer comparatively high interest payments. However, should the financial markets recover and interest rates rise in general, you will be not able to take advantage of those increases as you will have committed to a term deposit and are bound to see it out or pay penalties.

How is the interest calculated?

This varies from bank to bank. Some Australian banks calculate the interest on their term deposits daily and pay them monthly, giving customers who save with them the advantages of compound interest. Other banks calculate the interest quarterly and credit the account only once a year. Clearly, the ideal scenario is a term deposit that accrues compound interest that is paid regularly into your bank account.

When do I begin to earn interest?

You start to earn interest as soon as your application is approved and your term deposit is opened.

Which is the best term deposit?

Again, as interest rates go up and down, Australian banks vie for the limited amount of money that is going around and the financial crisis continues to make investors nervous, it pays do your research before you decide on which bank term deposit is best for you. Generally, term deposits that are fixed for 12 months give the best returns, though there are always exceptions.

If I have sufficient money sitting around in regular bank accounts, is it a good idea to spread my term deposits amongst a number of banks?

Not necessarily. Often the larger the amount of money you put into a term deposit, the higher the interest rate paid by the bank, so sometimes it is better to consolidate your term deposits into one account and so qualify for the rewards of higher interest payments.

How safe are bank term deposits? Does the Government guarantee them?

All term deposits, whether they be with banks, building societies or some other financial institution are guaranteed by the Australian Government until October 12th 2011. This makes them one of the safest places that you can put your money, providing you don't mind that money being tied up for a set period of time.

What is a 'chosen bank account' and why do I need one?

A chosen bank account is the account you nominate to receive your money once your term deposit has reached its maturity.

Can I add more money to my term deposit as time elapses?

No. The amount of money in the term deposit, time that the deposit is fixed for and interest rate are locked in and cannot be altered in any way once you've opened your term deposit. If you wish to add more funds to the term deposit, you have until it reaches its maturity, then you can put in more money. It is worth noting that some banks are starting to offer a Loyalty Bonus to customers who rollover their deposits for another term.

How will I know when my term deposit has matured?

Most banks will keep you informed on what is happening with your term deposits, the exception being very short term deposits like those for one month where you may need to watch it carefully yourself.

What if I miss the maturity date? What will happen to my term deposit?

If you don't get in touch with your bank before the term deposit matures, the chances are that they will automatically roll over your money into a new term deposit. Even if you are thinking of putting your money into another term deposit, it's best not to just let it happen as a matter of course. You must bear in mind that the new term deposit will pay whatever the interest rate is on the day that the original account rolls over and that rate might not be as good so what you were getting before, or be as high as what a different bank is offering. The best advice is to always be aware of what is going on with your term deposits and to keep up to date with the latest interest rates by keeping your eye on term deposit comparison websites.

Once I've opened my term deposit, can I keep track of it with online?

These days, all Australian banks offer online accounts and services and term deposits are no different. You should be able to monitor your term deposit and the interest in is earning using Internet banking services.

Can I check my term deposit using phone banking?

Like Internet banking, phone banking is now commonplace and you should be able to keep up to date on what is happening with your bank term deposit via the telephone.

How do I put the money into my term deposit account?

Funds are usually either debited directly from your nominated bank account, or you can pay the money in directly using a cheque.