Term deposits after four rate rises: how to choose a term

The Reserve Bank of Australia (RBA) raised the cash rate, the official interest rate it sets, to 4.60 per cent on 29 September 2026, its fourth increase this year. Term deposit rates have risen along the way, so the choice of term is worth a fresh look.

Term deposit rates have risen with the cash rate

The cash rate began 2026 at 3.60 per cent. Three increases between February and May took it to 4.35 per cent. In September, the RBA pointed to higher energy prices as the conflict in the Middle East widened.

The RBA's statistical tables show average term deposit rates at the five largest banks for a $10,000 deposit. The one year average rose from 3.75 per cent at the end of 2025 to 5.00 per cent at the end of September 2026. The three year average rose from 2.95 to 4.20 per cent, and the six month average from 3.00 to 3.45 per cent. The September figures were collected on 30 September, the day the latest increase took effect, so they may not yet reflect it.

The strongest rates in the market were higher. Data from the comparison site Canstar for 1 October 2026 show the highest six month rates for a $10,000 deposit ranging from 5.25 to 5.45 per cent. The highest 12 month rate was 5.50 per cent. The best two year and five year rates were 5.55 and 5.50 per cent. Rates can differ widely between institutions.

Longer terms tend to pay more when markets expect rates to rise

Rates differ by term partly because of what markets expect the cash rate to do. The RBA's explainer on the yield curve notes that a bond's yield, the return investors expect each year, reflects their view of the cash rate over the bond's term. These market rates also influence term deposit rates. When markets expect the cash rate to rise, longer terms usually pay more. When they expect it to fall, shorter terms can pay more.

Market rates for several terms sat above the 4.60 per cent cash rate in early October. On 8 October, three month bank bills, a gauge of banks' short-term borrowing costs, yielded 4.78 per cent and six month bills 5.17 per cent. Three year Australian Government bonds yielded 4.93 per cent on 7 October. The ASX's RBA Rate Tracker reads market expectations from trading in contracts linked to the cash rate. On 8 October it put the chance of a rise to 4.85 per cent at the November meeting at 27 per cent.

At the end of September, the big banks' one year average was above both their six month and three year averages. On 1 October, Canstar's best rates for six months, one year, two years and five years were within a tenth of a percentage point of each other. With little extra on offer for a longer term, the timing of your own plans may be the better guide.

The term can match when the money is needed

One approach is to match the term to when the money will be needed. Funds set aside for a known cost, such as school fees, could sit in a term that ends shortly before the bill is due. Money that might be needed at short notice may suit a cash account better, since breaking a term deposit usually requires notice.

Spreading money across several terms, often called a ladder, means part of it matures, or reaches the end of its term, at regular intervals. As an illustration only, $100,000 could be split into four deposits of $25,000 for three, six, nine and 12 months. One then matures every three months, ready to be used or reinvested for 12 months. Any part that is reinvested gets the rate on offer at the time, which may be higher or lower than today's.

For money that can stay invested for longer, bonds also offer fixed interest, although their price can rise or fall before they mature.

A few rules are worth knowing before you commit

• The Government guarantee. The Australian Government's Financial Claims Scheme protects deposits, including term deposits, up to $250,000 for each account holder at each bank, building society or credit union incorporated in Australia. Different brands of the same bank share one limit.
• Early withdrawal. Taking money out before the end of the term commonly needs 31 days' notice, and the interest paid may be reduced. Some banks also charge a fee.
• Maturity. If no instruction is given, many banks reinvest the money for a new term at the rate then on offer, which may be lower than the old one. Some move it to a holding account. There is often about a week afterwards to make changes.
• Interest payments. Interest is commonly paid monthly, annually or at maturity. Choosing monthly payments may mean a lower rate.

A fixed rate means the interest is known from the start

Because the rate is fixed, the interest on a term deposit held to maturity is known from the day it is opened. Your adviser can show today's strongest published rates for your amount and term, compare them with cash accounts and bonds, arrange the deposit for you, and contact you before it matures so you can decide what happens next.

If you are weighing up how long to fix for, talk to your adviser about what these rates mean for you.

This article is general information only. It does not take into account your objectives, financial situation or needs, and it is not a recommendation to buy, sell or hold any investment. Figures are as published on the dates given. Past performance is not a reliable indicator of future performance. Read the full risk warning