When considering a term deposit, one decision you’ll need to make is how often you want to be paid interest. Whether you choose to have your interest paid monthly, annually, or at maturity, each option can impact your overall returns differently.
Key topics covered
- Interest payment options
- Monthly vs annually vs maturity
- Payment frequency considerations
Interest payment frequency
Depending on the term deposit provider, you may be able to select one of the following interest payment frequencies for your term deposit:
- Monthly – interest payment once a month
- Quarterly – interest payment every three months
- Bi-annually – interest payment every six months
- Annually – interest payment once a year
- At maturity – interest payment when the term ends (generally, where the term is 12 months or less)
How interest payment frequency may affect your earnings
When you lock in a term deposit, the interest rate is fixed for the entire duration (when you hold to maturity). This means the rate won’t change whether you choose to receive your interest monthly, annually, or at maturity.
However, the interest payment frequency you select when taking out your term deposit will determine the interest rate you’re offered.
Generally speaking, if you choose more frequent payouts (like monthly or quarterly) term deposits with more regular payment frequencies may come with slightly lower interest rates, while receiving your interest annually or at maturity often comes with a higher interest rate.
Interest payment frequency considerations
When deciding on your interest payment frequency, the following are a few key considerations
-
Interest rates. More frequent payouts may come with slightly lower interest rates compared to annual or at-maturity options. While the difference may appear small, choosing the right frequency can help optimise your returns depending on your needs.
-
Cash flow needs. If you need regular, short-term income, such as supplementing your budget, monthly payments can provide a consistent cash flow. However, if you can afford to wait, annual or at-maturity payments might offer returns more in line with your longer-term priorities and objectives.
-
Savings goals. If you’re saving for a specific purpose, for example, a home purchase or a big trip, receiving interest at maturity may help you grow your savings to their full potential and keep you from dipping into your savings during the term. However, if you’re looking to supplement your income, a more frequent payout may be more suitable.
-
Opportunity cost. Some people prefer receiving interest more frequently to reinvest or use it for other purposes or expenses. However, if you don’t need immediate access, choosing annual or at-maturity payments may help you to maintain and grow your funds at potentially higher interest rates than term deposits that pay interest more frequently.
FAQs
Can I change my interest payment frequency during the term?
Once you lock in a term deposit, the interest payment frequency is typically fixed for the duration of the term. You generally can't change from monthly to annual or at- maturity payments midway through your term.
What does interest paid ‘at maturity’ mean?
When interest is paid at maturity, it means that instead of receiving regular interest payments throughout the term (e.g., monthly, quarterly or annually), you’ll receive the total amount of interest earned at the end of the term. For example, if you have a 12-month term deposit, all the interest accrued over that year will be paid to you in one lump sum when the deposit reaches maturity.
Important Information
© Judo Bank Pty Ltd ABN 11 615 995 581 AFSL and Australian Credit Licence 501091 (Judo). The Information on this page (Information) does not constitute personal, legal, investment, taxation, accounting or financial product advice, is provided for general information purposes only, and has been prepared without taking into account your objectives, financial situation, tax position or needs. It is subject to Judo’s disclaimer at www.judo.bank.
Before acting on any Information, you should consider whether the Information is appropriate for you having regard to your objectives, financial situation and needs. You should seek independent financial advice and read the relevant terms and conditions and relevant product documents before acquiring any product.