If you're looking for a secure long-term investment option with the guarantee of consistent returns, a 5-year term deposit could be the perfect solution. Combining high interest rates with the security of knowing exactly how much interest you will earn, a 5-year term deposit is worth considering if you want to adopt a safe investment strategy for your funds.
Before you choose a 5-year term deposit account, compare the interest rates and features of a wide range of accounts in this guide to ensure you get the best possible deal.
How do 5-year term deposits work?
5-year term deposits offer the security of a fixed interest rate and provide guaranteed returns on your investment. Also referred to as 60-month term deposits or long-term deposits, these accounts offer protection against any interest rate cuts that may occur.
Unlike a savings account, term deposits are set up so that it is impossible to access the funds in your account without incurring high fees. This removes the temptation to dip into your savings on a whim, instead providing an incentive for you to invest your money for the full 5-year term.
How does interest work on a 5-year term deposit?
With a term deposit, you invest your money for a set period – in this case, 5 years – and earn a fixed interest rate during that time. Interest can be paid monthly, quarterly, half-yearly, yearly or when the deposit matures. The interest rate is guaranteed not to change for the life of the deposit.
The interest rate on a term deposit remains the same until your account matures, which means you are protected against interest rate falls but you can't take advantage of any rises that may occur. So if you think interest rates are unlikely to increase at any time in the next 5 years, investing in a 5-year term deposit could be a good idea. Once the deposit matures at the end of the 5-year period, you can either withdraw your funds or roll them over into a new term deposit.
Banks and other financial institutions across Australia offer term deposits. There is plenty of competition in terms of interest rates and it could be worth your while to shop around for the account that offers the best deal.
What are the pros and cons of 5-year term deposits?
The pros
High interest rates. Term deposits allow you to earn a high rate of interest on the money you invest and reach your savings goals quickly.
Fixed interest rate. Because 5-year term deposits feature fixed interest rates, you won't have to worry about cuts to the Reserve Bank of Australia's official cash rate having any effect on the interest rate that applies to your savings balance.
Guaranteed returns. When you invest your money in a term deposit, you know exactly how much interest you will earn. This makes 5-year term deposits a secure and reliable investment option, allowing you the security to make financial plans for the future.
Money locked away. Because it is quite difficult to access your money while it is invested in a term deposit, there is no temptation to dip into your savings balance and make impulse purchases. This allows you to reach your savings goals as quickly as possible.
Flexibility. Term deposits are available with a wide range of investment terms, usually from 30 days up to 5 years. You have the flexibility and freedom to choose the term you want and also select how often interest is paid on your account.
Plenty of choice. 5-year term deposits are offered by myriad banks, building societies and credit unions across Australia. You have plenty of options to choose from and can shop around for the best rate before you decide on an account.
The cons
Rates won't rise. While term deposits protect you against falling interest rates, they also don't allow you to take advantage of any interest rate rises that occur. If rates go up while your funds are locked away in a term deposit, you won’t be able to invest your funds at a higher rate until your deposit matures.
Can't access funds. It's impossible to gain quick access to the money you have invested in a term deposit. You will need to give at least 31 days' notice and may incur substantial fees. Term deposits are far from ideal if you need access to funds in an emergency.
Why is it important to find the best 5-year term deposit rate?
The interest rates available on 5-year term deposits vary from one bank to the next. While there might not seem to be a huge difference in many of these interest rates, it's worth your while to find the highest interest rate you can. Take a look at the following fictional example:
As a make-believe example, let's pretend 32-year-old tradie Steve wants to invest $10,000 in a 5-year term deposit. Let's say when he compares the accounts available from the 2 banks of which he is already a customer, Steve discovers a slight difference in the interest rates on offer – Bank A offers 2.75% p.a. while Bank B offers 3.25% p.a. Both accounts pay interest monthly, so Steve compares the accounts to see just how much difference a higher rate will make to his end balance.
As you can see, even though the interest rate from Bank B is only 0.50% p.a. higher, this works out to be a difference of $289.69 at the end of the investment term.
* This is a fictional, but realistic, example.
Bank A
Bank B
Interest rate
2.75% p.a.
3.25% p.a.
Investment term
5 years
5 years
Interest paid
Monthly
Monthly
Balance after 5 years
$11,472.21
$11,761.90
Total interest paid
$1,472.21
$1,761.90
How do I compare 5-year term deposits?
Make sure to keep the following features in mind when comparing the benefits of 5-year term deposits:
Interest rate. Interest rates vary between banks, so it's important to shop around for the account that allows you to earn the highest rate of interest on your deposit. Even a small difference in interest rates can make a substantial difference to your balance at the end of a 5-year investment term. Don't hesitate to compare all your options.
Frequency of interest payments. Check to see when your account will pay interest – monthly, quarterly, half-yearly, annually or at maturity – and what effect this will have on your balance at the end of 5 years.
Fees. Make sure you're aware of any fees that apply to your account, such as ongoing account-keeping fees. There are many term deposit accounts out there that don’t charge any ongoing fees, so keep an eye out for any other charges.
Loyalty bonuses. Some banks provide a loyalty bonus if, when your term deposit matures, you decide to roll over your balance into another term deposit. This loyalty reward usually takes the form of a bonus interest rate on your account.
Linked account requirements. If you want to open a term deposit, some banks will also require you to open a linked account from which you can transfer funds to your term deposit. If this is the case, make sure you're aware of any fees that apply to this account.
Minimum balance requirements. Most banks impose a minimum deposit requirement on their term deposit accounts. This typically ranges from $1,000 to $10,000 or even higher, which means some accounts may not be suitable for your circumstances.
What happens when the deposit matures. Some banks will automatically roll your funds over into a new term deposit when your account matures. Make sure you're aware of what will happen to your funds at the end of the investment term so that you can take control of your finances.
A 5-year term deposit provides a safe and reliable long-term investment option. Compare 5-year term deposit accounts at Finder and find the right account to help you save towards your financial goals.
Frequently asked questions
Early withdrawals are possible but usually come with penalties, such as reduced interest or a fee.
Interest is typically paid either monthly, annually, or at the end of the term, depending on the specific terms of the deposit.
Yes, they are generally low-risk, with your initial deposit and interest guaranteed, often up to a certain limit by the government.
Tim Falk is a writer for Finder, writing across a diverse range of topics. Over the course of his 15-year writing career, Tim has reported on everything from travel and personal finance to pets and TV soap operas. When he’s not staring at his computer, you can usually find him exploring the great outdoors. See full bio
Want to withdraw money from your term deposit before it matures? Penalties apply, so check out this guide to term deposit penalties and how they will affect you.
The added level of control coupled with the high interest earning potential of notice savers makes this a savings account worth considering. Ensure that you understand exactly how it works, and if it will fit in with your financial goals before making a final decision.
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