Personal Term Deposits

One practical benefit of a term deposit that is sometimes overlooked is the behavioural aspect. Because the funds are locked away, the option to withdraw on impulse is not available in the same way it is with an at-call savings account. If you know from experience that accessible savings tend to get spent, a term deposit removes that temptation by design.

The interest rates on term deposits are the financial reward for that commitment. In return for agreeing not to access your funds for a set period, the bank offers a fixed rate that is often higher than at-call savings rates. The combination of a guaranteed rate and restricted access can be useful for people saving towards a specific goal with a defined timeline.

When running a term deposit rates comparison, the interest rate is the most obvious factor, but it is not the only one worth examining.

Consider the maturity options. When your ING term deposit matures, you have three choices: renew the principal and interest (so accumulated interest becomes part of the new deposit), renew the principal only and transfer the interest to a linked account, or close the account entirely and transfer all funds. You can change your maturity instruction in online banking at any time up to one business day before the maturity date.

Also consider the term length relative to when you will need the funds. There is no benefit to locking money away for 12 months if you know you will need it in 9. Choose a term that genuinely aligns with your timeline.

Finally, check the early withdrawal conditions before you commit. Unlike at-call savings accounts, early access to term deposit funds is not straightforward, and a rate reduction applies if you need to access funds before maturity.

The term deposit interest rates you see advertised are always annualised. If you choose a 6-month term, you receive a pro-rata portion of that annual rate.

Interest on the ING Personal Term Deposit is calculated daily using the following formula:

Daily Interest = Daily balance x (Annual Interest Rate / 365)

Your total interest earned over the term is the daily interest multiplied by the number of days in the term. There are no management fees or performance charges. The calculation is straightforward, and your return at maturity is predictable from day one.

When evaluating term deposit returns, it is worth considering two factors beyond the headline rate: tax and inflation.

In Australia, interest earned on a term deposit is assessable income and is taxed at your marginal tax rate. If you are in a higher income tax bracket, your effective return after tax will be lower than the headline rate. Providing your Tax File Number (TFN) or exemption code when opening the account ensures tax is not withheld at the highest marginal rate.

Inflation is the other factor to consider. If inflation is running at 3% and your term deposit pays 4.5%, your real return before tax is 1.5%. Your money is growing in nominal terms, but the increase in purchasing power is smaller once inflation is accounted for. Calculating your after-tax, inflation-adjusted return gives you the most accurate picture of what your deposit is actually earning for you.

Before committing to a term deposit, consider whether you might need to access the funds before maturity. An emergency fund or a short-term buffer in an at-call account is generally a better option for money you may need quickly.

If you do need to access your ING term deposit funds before the maturity date, you must give 31 days' notice (except in cases of financial hardship). An interest rate reduction also applies, which varies based on how much of the term has elapsed:

Because these reductions are significant, it is important not to lock away funds you are likely to need before the maturity date. If you are unsure whether a term deposit is appropriate, consider a Savings Accelerator instead, which allows at-call access to your funds.

One example strategy sometimes used with term deposits is known as ‘laddering’. Instead of depositing all your funds into a single term, you split the total across multiple deposits with different maturity dates.

For example, if you have $30,000 to deposit, you might put $10,000 into a 3-month term, $10,000 into a 6-month term, and $10,000 into a 12-month term. As each deposit matures, you can assess the rate environment at that time and choose whether to renew or redirect the funds.

This approach gives you two practical benefits. First, you maintain some liquidity: every few months a portion of your funds becomes available. Second, you reduce the risk of locking all your money into one rate at a single point in time. If rates rise after your deposits open, you will have funds freeing up at regular intervals to capture the new rates. If rates fall, the deposits still locked in continue earning the older, higher rate.

Laddering works best for people who have a clear view of their timeline and do not need the full amount at any single point. Matching each deposit term to a specific financial milestone, such as a car purchase or property settlement, is a practical way to structure it.