Saving for a house deposit can feel overwhelming – taking both time and discipline. A term deposit may help you reach your goal faster.
What is a term deposit?
Term deposits are a straightforward, low-risk savings product offered by authorised deposit-taking institutions (ADIs). Term deposits lock away a set amount of money for a specific period (also known as the term length), which can range from a few months to several years. In return, you earn a fixed interest rate that doesn’t change for the duration of your term length – no matter what is happening in the market.
- See how term deposits compare with regular savings accounts.
Some benefits of term deposits when saving for a house deposit
Fixed returns
One of the major benefits of term deposits is the fixed interest rate. This means no matter what happens in the market, you’ll know exactly how much interest you’ll earn over the term length provided you hold to maturity. For anyone saving for something as important as a house, this kind of predictability can offer great peace of mind.
Savings discipline
Sometimes it’s hard to resist dipping into your savings for smaller, unexpected expenses. That’s where the locked nature of a term deposit can help. Once your money is in a term deposit, it’s locked away until the end of the term, making it much harder to access without facing early break costs (unless proven financial hardship applies).
This built-in discipline can be a great savings tactic when you’re working toward a large goal like a house deposit. It keeps you committed and may help prevent impulse spending, helping you stay on track.
Higher interest rates
Compared to regular savings accounts, term deposits often offer higher interest rates. Unlike regular savings accounts, where earning interest can depend on meeting bonus rate criteria (like depositing a certain amount each month), term deposits can offer a fixed rate without additional conditions. This structure may help you to plan your savings with certainty, as your returns are set for the term length.
Lower risk
Term deposits are considered a low-risk investment product. With term deposits, you don’t have to worry about dealing with volatile returns. For savers who prefer a low-risk approach, especially when saving for a big milestone like buying a home, term deposits can offer stability and security. You know what return you’re getting, provided you hold to maturity, and you can plan around it with confidence.
A term deposit may also help with your loan application
As you build your savings for a house deposit, it's worth thinking ahead to the home loan process. Lenders often look for evidence of “genuine savings” – meaning you've been saving consistently, not just relying on gifts or one-off amounts.
This is where term deposits can play an important role in boosting your mortgage application. If you’ve held a term deposit for several months or more, most lenders will count it as genuine savings. This may show lenders you’re disciplined with your finances, which can potentially help strengthen your loan application.
Using term deposits to help save for a house deposit
While term deposits can be a great tool for saving, there are a few important things to consider before locking in your funds for a house deposit.
Lock-in period
When you open a term deposit, your money is locked away for a set period, which can range from a few months to several years, depending on the term length you choose. While this helps you stay disciplined, it also means you won’t be able to access your funds during that time without paying early break penalties (unless facing proven financial hardship). It’s important you're comfortable not needing immediate access to your money until the term ends.
No additional deposits
Once you’ve opened a term deposit, you won’t be able to add more money to it until the term ends. This can be a drawback if you find yourself with extra savings that you'd like to invest. However, you may be able to open another term deposit account if you wish (provided you meet the minimum deposit amount – which varies between term deposit providers).
Interest is fixed for the term
The fixed interest rate on a term deposit provides stability, however, it also means if interest rates increase during your term, you won’t benefit from the higher rates. You’ll be locked into the rate you agreed to at the start, until the end of the term.
Important Information
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