Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 220

Six ways to improve your term deposit outcome

Investors who want a secure place to keep their money without any market risks are faced with meagre choices. The cash rate is only 1.5%, and term deposit rates are around 2.5% for most terms, which is barely higher than inflation.

Yet term deposits and cash accounts are the mainstay of most personal investment portfolios, including about 30% of the assets of self managed super funds. With such low rates, investors need to rethink their term deposit rollover strategies and not simply accept the poor rates offered by their bank at maturity time.

The power of ‘retail inertia’

Back in the good old days, before political correctness, banks used to describe the willingness of customers to accept poor term deposit rollover rates as ‘retail inertia’. This means that banks might have a term deposit special at 3% and rollover similar deposits at 2%. The vast majority of existing customers accepted the lower rate.

Check what it says on a typical term deposit rollover letter: “If you have a special rate, that rate will generally apply for a single term. Standard term deposit rates may apply for subsequent terms.”

Which is bankspeak for: “You’ll receive a lower standard rate on rollover unless you ask for a special one.”

Banks also offer special bonus rates for the first four months on some at-call deposits. At the end of the four months, customers fall to the ‘standard’ rate, and most don’t leave.

A 0.3% bonus for four months is equal to only 0.1% per annum, an immaterial cost to the bank for gathering genuine retail deposits. It’s the same with credit cards and the ‘six months interest free’ for switching banks. They hope customers can’t be bothered changing again.

Don’t ignore the bank rollover letter

The term deposit rollover letter is not like the gas or electricity bill where the customer must accept the cost. There are many ways an investor can improve the outcome:

1. Critically review the rollover rate. Most depositors tick ‘rollover for the same term on maturity’ when they open a term deposit, and if no action is taken, the rate offered by the bank will be locked in. Most banks give a one-week grace period if the rollover date is missed.

2. Phone your bank and ask for a higher rate. First, go to a comparison website such as ratecity.com.au or mozo.com.au, and arm yourself with the highest rate. Deposits of less than $250,000 with any ‘Authorised Deposit-taking Institution’ (ADI) are guaranteed by the Government.

Even if the bank is not prepared to match the offer from a small credit union, the bank will probably offer more than in the rollover letter.

3. Watch changes in terms and conditions. In the past, banks allowed early access to term deposits but they have become much stricter and usually impose penalties for early withdrawal. In some cases, banks have written to customers saying funds cannot be accessed (even with a penalty) inside a 31-day notice period.

4. Consider another term, although accepting higher rates for longer terms carries risks of being locked in for longer. A five-year rate at only 3% might be too much exposure to rising rates.

5. Don’t leave the paperwork until the last minute. Although banks usually nominate a grace period to negotiate a rollover, some require attendance at a branch to verify a variation.

In today’s online and mobile world of banking, it can be frustrating finding a branch just to sign a form. Also, the interest rate paid during the grace period is nominal, 0.5% to 1%, so act early.

6. Review the range of alternatives. Where term deposits once offered decent rates, now they give little more than capital security with the protection of the Government Guarantee for ADIs.

It’s worth checking alternatives such as bonds, bond funds, Exchange Traded Funds or listed securities, but they come with more risk and professional advice may be useful. All investment platforms have a range of bond funds and income-based options.

Whenever you see the words ‘Automatic Renewal’ on a term deposit rollover, there’s a strong chance you can do better.

 

Graham Hand is Managing Editor of Cuffelinks. This article is general information and does not address the circumstances of any individual.

 

RELATED ARTICLES

The terms they are a-changin’

Why bank hybrids are being priced at a premium

The best income-generating assets for your portfolio

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Getting rich vs staying rich

Strategies to get rich versus stay rich are markedly different. Here is a look at the five main ways to get rich, including through work, business, investing and luck, as well as those that preserve wealth.

Latest Updates

SMSF strategies

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Superannuation

The huge cost of super tax concessions

The current net annual cost of superannuation tax subsidies is around $40 billion, growing to more than $110 billion by 2060. These subsidies have always been bad policy, representing a waste of taxpayers' money.

Planning

How to avoid inheritance fights

Inspired by the papal conclave, this explores how families can avoid post-death drama through honest conversations, better planning, and trial runs - so there are no surprises when it really matters.

Superannuation

Super contribution splitting

Super contribution splitting allows couples to divide before-tax contributions to super between spouses, maximizing savings. It’s not for everyone, but in the right circumstances, it can be a smart strategy worth exploring.

Economy

Trump vs Powell: Who will blink first?

The US economy faces an unprecedented clash in leadership styles, but the President and Fed Chair could both take a lesson from the other. Not least because the fiscal and monetary authorities need to work together.

Gold

Credit cuts, rising risks, and the case for gold

Shares trade at steep valuations despite higher risks of a recession. Amid doubts that a 60/40 portfolio can still provide enough protection through times of market stress, gold's record shines bright.

Investment strategies

Buffett acolyte warns passive investors of mediocre future returns

While Chris Bloomstan doesn't have the track record of his hero, it's impressive nonetheless. And he's recently warned that today has uncanny resemblances to the 1990s tech bubble and US returns are likely to be disappointing.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.