Most term deposit comparisons hand you a list of banks and let you assume that longer means better. The RBA’s own data says otherwise right now, and the shape of the curve is more useful than any single bank’s offer.
The curve, July 2026
View the data
| 1mo | 1.40% |
|---|---|
| 3mo | 3.30% |
| 6mo | 3.75% |
| 1yr | 5.00% |
| 3yr | 4.30% |
Source: RBA F4 Retail Deposit and Investment Rates, data to 31 July 2026, accessed .
Three things fall out of that shape.
One year is the peak. At 5.00% it pays more than three years at 4.30%. You are being offered less to commit for three times as long.
Short terms are poor. One month averaged 1.40%, below what a competitive at-call savings account pays. Short term deposits exist for cash-management reasons, not for savers, which is worth remembering when a bank pushes a one-month special.
The average across all terms was 3.60%, which tells you a lot of money is sitting in the weaker parts of this curve.
Why longer pays less
An inverted curve is a forecast with a price on it. Banks won’t lock in 5.00% for three years if they expect to be paying materially less than that for most of the period.
That’s a real signal, and it’s consistent with where the RBA is: the cash rate was raised three times through 2026 to 4.35%, and the Board held on 11 August while it assessed the effect of those increases. Markets are pricing the tightening as closer to its end than its beginning.
Why deposit rates track the policy rate at all is worth reading if that connection isn’t obvious. The short version is that banks compete harder for your money when their own cost of funds is higher, and ease off once it settles.
Two practical conclusions. Twelve months is the sweet spot on current averages. And stretching to three years for a lower rate only makes sense if you specifically want the certainty, not because longer is normally better.
Term deposit or savings account?
| Product | Rate | Access |
|---|---|---|
| Term deposit, 1 year | 5.00% | Locked |
| Bonus savings account | 4.80% | At call, conditions apply |
| Term deposit, 6 months | 3.75% | Locked |
| Online savings account | 3.10% | At call |
| Cash management account | 0.55% | At call |
The one-year term deposit currently edges out bonus savings, and it does so without monthly conditions. That’s the underrated part. A bonus savings account pays its headline only in months you meet the deposit and withdrawal rules; a term deposit pays its rate regardless of what your month looks like.
For someone who reliably meets bonus conditions, the two are close and the savings account keeps your access. For someone who doesn’t, the term deposit wins twice. And for money you’re not confident about locking away entirely, a plain at-call savings account still beats leaving it in a transaction account, whatever term deposit rates are doing.
Term deposit laddering: how it actually works
Locking the whole balance into one term is the most common mistake, and it’s an easy one to avoid without giving up the better rate. Laddering means splitting the money across several term deposits with staggered maturity dates instead of one lump sum in one term.
| Rung | Amount | Term | Rate | When it frees up |
|---|---|---|---|---|
| 1 | $10,000 | 6 months | 3.75% | Month 6 |
| 2 | $10,000 | 12 months | 5.00% | Month 12 |
| 3 | $10,000 | 12 months (reinvested from rung 1 at month 6) | 5.00% | Month 18 |
Once rung one matures at month six, you roll it into a fresh twelve-month term instead of spending it, and the ladder keeps itself going: from month twelve onward, roughly a third of the money matures every six months, whatever the rates look like by then. You get periodic access without ever breaking a term early, and two-thirds of the balance earns the better twelve-month rate from the start rather than sitting entirely in the weaker six-month tier.
The trade-off is real: laddering earns less than putting the whole $30,000 into the single best-paying term, because part of the money always sits in a shorter, lower-paying rung while it waits its turn. What it buys instead is liquidity on a schedule you control, which matters more the closer the money is to something you might actually need.
Laddering suits a balance you’re fairly confident you won’t touch in full, but where “fairly confident” isn’t the same as certain. If you might need all of it at once, on short notice, none of it belongs in a term deposit at all. More on that below.
The early-withdrawal penalty, in detail
Most Australian term deposits require up to 31 days’ notice before releasing funds ahead of maturity. That isn’t an arbitrary inconvenience. It’s the condition that lets banks offer term deposits as straightforward “basic deposit products” under ASIC’s regulatory relief, rather than a more heavily regulated managed investment. The notice period exists to give banks room to manage liquidity, and it applies whether you’re breaking a six-month term or a five-year one.
On top of the notice period, breaking early generally costs you on the interest:
- An interest rate reduction, set by the bank and written into the account terms. You may receive only a proportion of the promised rate, or in some cases none of it for the period held.
- A flat administration fee, in some products, on top of the reduced interest.
- Hardship exceptions. Most banks will waive or ease the notice period and penalty if you can demonstrate genuine financial hardship. Worth asking about directly if that’s your situation, rather than assuming the standard terms are the only option.
Find the exact reduction in your bank’s terms before you deposit, not after you need the money. It’s the number that actually determines whether a term deposit or a laddered mix of them is the right structure for you. A small reduction makes an early exit tolerable in a genuine emergency; a severe one makes it a last resort, and worth planning around rather than discovering under pressure.
Choosing your first term, if you’re starting from scratch
If this is your first term deposit and you don’t yet have a ladder, keep it simple rather than optimal. Put money you’re confident you won’t need into the twelve-month rate, since it currently tops the curve. Keep everything else, the genuine buffer, the “might need it” portion, in an at-call account instead of a shorter, weaker term deposit that barely beats it anyway.
Only build out a full ladder once you have a large enough balance that splitting it across three or four rungs still leaves each one a meaningful amount. Below roughly $10,000–15,000 total, the extra admin of managing several term deposits usually isn’t worth it compared with one term deposit and one savings account sitting alongside it.
Tax timing on terms longer than a year
Most people assume tax on a term deposit is simple: you get taxed when you get paid. For a twelve-month term or shorter, that’s roughly right.
For terms longer than twelve months where interest isn’t paid until maturity, it isn’t. The ATO’s general position on investment income is that interest is assessable in the income year it’s earned or made available to you, not just the year you physically receive it. In practice that means a two-year term deposit paying all its interest at maturity can still leave you needing to declare accrued interest in the first financial year, based on the annual statement your institution issues, even though you haven’t touched a dollar of it yet.
Two ways around the surprise: choose a term that matches your own financial year where possible, or choose an account that pays interest periodically (annually, or more often) rather than only at maturity, so what you declare lines up with what actually lands in an account you control. Check your specific institution’s annual statement rather than assuming either way, since the details depend on how the product is structured.
Checking the institution, not just the rate
The Financial Claims Scheme only protects deposits at an authorised deposit-taking institution (ADI) regulated by APRA. Most banks, credit unions and building societies are ADIs. Some products marketing themselves as “term deposits” or “investment deposits” through non-bank lenders are not, and don’t carry the same government guarantee at all.
Before chasing a rate that looks unusually high, check that the provider is actually an ADI. It’s a five-minute check against APRA’s public register, and it’s the single thing that separates “slightly better rate” from “an entirely different risk category” when a small institution is offering something well above the rest of the curve.
A product sitting noticeably above every rate on the RBA’s own curve is the exact situation where this check matters most. It isn’t automatically a scam, but a rate that far outside the pack from a name you don’t recognise is asking to be verified rather than trusted on the strength of its number alone. Fintech and non-bank lenders sometimes market “term deposit” style products that are actually a different kind of investment entirely, with none of the Financial Claims Scheme guarantee behind them, and no notice-period regulation forcing basic-deposit-product treatment. The name on the page and the legal category underneath it are not always the same thing.
What to check before locking in
The maturity default. Many term deposits roll automatically into a new term at whatever rate applies that day if you do nothing. Diarise the maturity date with a reminder a fortnight ahead. Automatic rollover is the bank’s default, not your decision.
Whether interest is paid at maturity or periodically. It affects when you can use the money and how it’s taxed.
The licence, not the brand. Financial Claims Scheme cover is A$250,000 per account holder per ADI, aggregated across brands under one banking licence.
Minimum deposit. Rates often step up at balance thresholds, so the advertised figure may need more than you planned to commit.
Don’t put the emergency fund here
Worth stating plainly: a term deposit is the wrong home for money you might need without warning. The whole product sells access in exchange for rate, and emergencies don’t check maturity dates or give 31 days’ notice.
Keep the buffer at call, and use term deposits, laddered or not, for money with a known date attached: a tax bill, a planned purchase, a deposit due next winter. Get that split wrong and you’ll be the one paying the bank’s early-exit penalty instead of the other way around.
The rest of the comparison, against savings and bonus accounts, lives in the savings accounts guide. And how Australian rates compare with the US, UK and Canada is worth a look if you’re weighing options across borders, or wondering whether the local curve is actually generous by international standards.