Insider’s guide to the term deposit


For some, a term deposit is a familiar way to invest your savings, with the added benefit of higher interest rates and guaranteed returns. For others, understanding the ins-and-outs of a term deposit can feel like you’re trying to speak a foreign dialect.

The key to becoming a pro-saver is to literally learn the language. To help you get started, our savings experts shed light on some of the key considerations and terminology you should be across when it comes to term deposits, so when it’s time to invest your cash, you’re ready to pinpoint the best deal.

Key considerations when opening up a term deposit

Investment Terms can be a minefield to wrap your head around. In fact, our research showed that more than 70 per cent of Australians were not aware that they could request a term deposit for any length of time they choose.

Put simply, Investment Terms refers to the length of time you choose to commit your deposit to and can range from short term – with a minimum term of three months – to long term – for a term deposit period of up to 60 months. Terms are also incredibly flexible and, at Gateway, you can choose any amount of time you wish to lock in your investment, whether it’s two years or four months and six days – exactly in time for your next holiday or big purchase.

Rates are fixed. There are many benefits to a term deposit: your cash assets are protected by the Australian Government Deposit Guarantee – up to $250K, you’re guaranteed a return on investment and you won’t be as tempted to dip into your savings because of early withdrawal penalties (more on that later). However, it’s important to remember that term deposit interest rates are fixed for the term, meaning you won’t be able to take advantage of movements in the market, should interest rates increase.

There are fees and charges for early withdrawal. While term deposits are a great way to grow your wealth without the risk of stock market fluctuations, you should still be well aware of the fees and charges of different products. There may be fees and charges for early withdrawal on term deposit accounts. Find out what these are and be ready to pay these fees if you choose to withdraw from your term deposit early.

Tax on term deposits. Interest earned on term deposits will be subject to income taxes and because the terms can differ greatly, the rule of thumb is to declare and pay taxes on any interest earned from your term deposit in the past financial year. You should also remember to provide your bank with your Tax File Number (TFN), TFN Exemption or ABN, or they will be obliged by law, to withhold tax from the interest they pay you.

Cutting through the jargon


Maturity refers to the date at which your deposit reaches the end of its term. At this stage, your deposit can either rollover into the existing term, be withdrawn or be renewed under another term deposit agreement.

Compounding or standard describes the way that interest is calculated on your term deposit.

  • Compounding term deposits adds the interest into your account periodically, and interest is earned on the balance at the end of each interest earning period.
  • Standard term deposits credit interest into your account periodically, and interest is earned only on your initial deposit amount, or Principal. This is generally credited into your account at maturity or annually - for terms of less than 12 months.
    The way that interest is paid out can also vary and, most commonly, this is done on a monthly, six monthly or annual basis, with most term deposit accounts crediting interest accrued at the point of maturity.

A Grace Period gives you the flexibility to change your mind without penalty. Many term deposits include a grace or ‘cooling off’ period where you’ll be able to withdraw your investment without being liable for the fees associated with early withdrawal.
Whichever option you choose to go with, now is the time to take the reins on your savings with a term deposit. Head over to our rates page for a full list of our most up-to-date interest rates and talk to one of our Customer Care team members to start growing your wealth today.

Want to check out Gateway's Term Deposits? View our term deposit rates here.