Term Deposit Calculator Australia: How Interest Is Calculated (2026)

A term deposit locks your money with a bank for a fixed period — typically 1 month to 5 years — in exchange for a guaranteed interest rate. Unlike a savings account where the rate can change at any time, the term deposit rate is fixed at the start.

The Term Deposit Calculator does the maths instantly. This guide explains how the interest is actually calculated, what to look for when comparing rates across Australian banks, how early withdrawal penalties work, and how the interest is taxed.

Quick answer: Most Australian term deposits pay simple interest — your principal × interest rate × time. On a $50,000 deposit at 5.00% for 12 months, that is $2,500 in interest. Interest is usually paid at maturity (for terms under 12 months) or annually (for longer terms). It is taxed as ordinary income in the year it is received.

How term deposit interest is calculated in Australia

Term deposit interest in Australia is almost always calculated on a simple interest basis — not compound interest. Simple interest means you earn a fixed return on your original principal each period, and that return does not itself earn interest.

Simple interest formula:

Interest = Principal × Annual rate × (Days / 365)

Worked example — 12-month term deposit:

Principal: $50,000
Interest rate: 5.00% p.a.
Term: 365 days

Interest = $50,000 × 0.05 × (365 / 365) = $2,500

Final balance at maturity: $52,500

Worked example — 6-month term deposit:

Principal: $50,000
Interest rate: 5.20% p.a.
Term: 184 days

Interest = $50,000 × 0.052 × (184 / 365) = $1,314.52

Final balance at maturity: $51,314.52

The day count matters for shorter terms. Most Australian banks use a 365-day year regardless of whether it is a leap year, but verify with your specific provider.

Compound vs simple interest: what this means for term deposits

Term deposits pay simple interest — not compound interest. The difference matters when comparing term deposits with savings accounts and managed investments.

Compound interest means earnings are reinvested and also earn returns. An investment earning 5% p.a. compounded monthly grows faster than one earning 5% p.a. simple interest, because each month's interest is added to the principal before the next period's interest is calculated.

Why does this matter for term deposits?

If you roll over a term deposit — reinvesting both the principal and the interest at maturity into a new term — you are effectively compounding your return. Each new term earns interest on a larger principal. But within a single term deposit, the interest is calculated once on the original principal.

Comparison on $50,000 over 3 years:

Approach	Effective rate	Return after 3 years
5.00% simple interest, paid annually	5.00% p.a.	$7,500 total interest
5.00% compounded monthly (savings account)	5.12% effective annual rate	$8,059 total interest
5.00% simple, rolled over annually (reinvesting)	~5.00% p.a. on growing principal	~$7,882 total interest (reinvesting grows the base)

The gap is modest for short terms. Over 10+ years and at higher balances, compound growth (e.g. a savings account or ETF investment) diverges significantly from simple interest. Term deposits are not typically a long-term wealth-building tool — they are a short-to-medium term capital preservation and income tool.

How to compare term deposit rates across Australian banks

Term deposit rates vary significantly by institution, term length, and minimum deposit. The highest rates are typically at smaller banks, credit unions, and online-only institutions rather than the Big 4.

What drives rate differences:

Funding need: Banks offer higher term deposit rates when they need to attract deposits to fund their lending book. Smaller banks with fast loan growth often offer the most competitive rates.
Term length: Rates are not linear — a 6-month rate may be higher than a 12-month rate if the bank expects the Reserve Bank to cut rates over the next year.
Deposit size: Most providers offer the same advertised rate across deposit sizes, but some offer premium rates above $100,000 or $250,000.

Indicative term deposit rate ranges as at August 2026

Rates are indicative. Term deposit rates change frequently. Always verify current rates at the provider's website or comparison sites such as Canstar, RateCity, or Finder before investing.

Term	Big 4 banks (approx range)	Challenger/online banks (approx range)
1 month	4.30–4.60% p.a.	4.60–5.00% p.a.
3 months	4.60–4.90% p.a.	4.90–5.30% p.a.
6 months	4.70–5.00% p.a.	5.00–5.40% p.a.
12 months	4.60–4.90% p.a.	4.90–5.30% p.a.
24 months	4.30–4.60% p.a.	4.50–4.90% p.a.

Banks currently offering competitive rates in Australia include Judo Bank, Macquarie Bank, Rabobank, ING, and various credit unions. The Big 4 (Commonwealth Bank, ANZ, NAB, Westpac) typically offer lower rates but are preferred by some investors for familiarity and branch access.

What to look for when comparing:

APR (Annual Percentage Rate) vs effective rate: Most term deposits quote the simple annualised rate. If interest is paid at maturity on a multi-year term, this equals the nominal rate. If interest is paid more frequently (quarterly, monthly), the effective annual rate is slightly higher than the quoted rate.
Interest payment frequency: Monthly, quarterly, annually, or at maturity — and whether early payout is allowed
Minimum deposit: Ranges from $1,000 (some online banks) to $5,000 or $10,000 for major banks
Rollover conditions: What happens at maturity if you don't give instructions — most banks roll to a new term at the then-current rate, which may be lower
APRA authorised: All Australian deposit-taking institutions offering term deposits must be authorised by APRA. Check the APRA register if using a smaller provider. The government's Financial Claims Scheme guarantees deposits up to $250,000 per account-holder per ADI.

Term deposit rates and the RBA cash rate

Term deposit rates move broadly in line with the Reserve Bank of Australia's cash rate. When the RBA raises rates (as it did 13 times from May 2022 to November 2023), term deposit rates rise. When the RBA cuts rates, term deposit rates fall — typically within weeks.

The RBA began cutting rates in February 2025. As at August 2026, the cash rate is 3.85%. Term deposit rates at 4.60–5.40% for competitive providers represent a spread of roughly 0.75–1.55% above the cash rate — normal for the deposit market.

Implication: If you expect further RBA rate cuts, locking in a longer term deposit now secures the current rate for that period. If you expect rates to rise (or hold), shorter terms give you flexibility to reinvest at higher rates sooner.

Term deposit vs savings account: which pays more?

The answer depends on when you'll need the money.

Feature	Term deposit	High-interest savings account
Rate type	Fixed for the term	Variable — can change at any time
Access to funds	Locked until maturity	Instant (same-day for most banks)
Early access	Allowed with penalty (see below)	Always available
Interest payment	At maturity or annually	Monthly (most accounts)
Typical rate advantage	Often 0.30–0.80% higher than savings	Lower but flexible
Risk of rate cut	None (rate locked)	Rate can be reduced at any time

If you will not need the money for 6–12 months and want rate certainty, a term deposit typically pays more than a savings account and eliminates the risk of a rate cut reducing your return.

If you may need the money sooner, a high-interest savings account preserves access. See High Interest Savings Accounts Australia 2026 for current comparison.

How early withdrawal penalties work

Breaking a term deposit before the maturity date almost always attracts a penalty — typically a reduction in your interest rate. You do not lose your principal, but you receive less interest.

Common penalty structures:

Time remaining	Typical interest rate reduction
More than 12 months to go	Interest reduced to 0% (no interest paid)
6–12 months to go	80% reduction in agreed rate
3–6 months to go	60% reduction in agreed rate
Less than 3 months to go	50% reduction in agreed rate

Specific penalties vary by provider. Always check the term and conditions before investing.

Worked example — early withdrawal after 3 months of a 12-month term:

Original deposit: $50,000
Agreed rate: 5.00% p.a. for 12 months
Early withdrawal after: 3 months (91 days)
Applicable penalty: 50% reduction (agreed rate becomes 2.50% p.a.)
Interest earned: $50,000 × 0.025 × (91 / 365) = $312.33

Without the penalty, you would have earned $50,000 × 0.05 × (91/365) = $624.66. The early exit cost you $312.33 in interest.

Some banks require notice before early withdrawal — typically 31 days. If you redeem without notice, an additional interest reduction may apply. Read the product disclosure statement (PDS) before investing.

Tax on term deposit interest in Australia

Term deposit interest is taxable as ordinary income in Australia. It is treated the same as salary or bank savings interest — added to your other income and taxed at your marginal rate.

When is it taxed?

Interest is generally taxable in the income year it is received or credited to you, not when you invest. For a 12-month term deposit maturing in July, the interest would be assessable in the financial year ending 30 June of the following year (because it's received in July after the financial year changes).

Worked example:

$50,000 term deposit, 5.00% p.a., matures October 2026
Interest received: $2,500
Marginal tax rate (including Medicare Levy): 34.5%
Tax on interest: $2,500 × 34.5% = $862.50
After-tax return: $2,500 − $862.50 = $1,637.50 (3.28% after-tax effective yield)

Withholding tax (TFN withholding):

If you do not provide your Tax File Number (TFN) to the bank, they are required to withhold tax from your interest at the top marginal rate (47%) before paying it. Always provide your TFN when opening a term deposit. You can reclaim over-withheld amounts through your tax return, but it creates unnecessary complexity.

Jointly-held term deposits:

Interest from a jointly-held term deposit is usually split equally between holders for tax purposes, unless there is evidence of a different ownership split. Both holders include their share in their individual tax returns.

Superannuation fund term deposits:

Term deposits held within a superannuation fund are taxed at the fund's earnings tax rate — 15% in accumulation phase, 0% in pension/retirement phase — rather than your personal marginal rate. A retiree in pension phase earning $2,500 interest on a super fund term deposit pays no tax on it.

Use the Income Tax Calculator to calculate the after-tax return on term deposit interest at your marginal rate.

Pros and cons of term deposits in 2026

Pros:

Guaranteed return: The rate is locked in for the term — unaffected by RBA cuts, bank decisions, or market movements
Capital security: Principal is returned in full at maturity (subject to APRA ADI status and the $250,000 Financial Claims Scheme guarantee)
Higher rate than transaction accounts: Term deposits consistently pay more than everyday savings for deposits held for the agreed period
Forced discipline: Money locked away cannot be spent impulsively — useful for short-term savings goals

Cons:

No access to funds: If you need the money urgently, early withdrawal attracts a penalty
Inflation risk: At a 5% rate with 3–4% CPI inflation, the real (after-inflation) return is 1–2% — better than cash but not a wealth-building strategy over the long term
Tax drag at higher rates: At 47% marginal rate, a 5% gross return becomes 2.65% after tax — comparable to or below the effective after-tax return from franked ETF dividends
Rollover risk: Auto-rolled deposits may renew at a lower rate without the investor noticing — always review at maturity

Frequently Asked Questions

How is term deposit interest calculated in Australia?

Most Australian term deposits calculate interest using the simple interest formula: Principal × Annual rate × (Days / 365). On a $30,000 deposit at 5.00% for 12 months, that is $30,000 × 0.05 = $1,500. Use the Term Deposit Calculator to model any combination of amount, rate, and term.

Do term deposits pay compound interest?

No. Australian term deposits pay simple interest — interest is calculated on the original principal only and paid at maturity (or annually for longer terms). If you roll over the deposit at maturity — reinvesting both principal and interest — you are effectively compounding across terms, but within a single term the interest is simple.

What is the best term deposit rate in Australia in 2026?

Rates change frequently with the RBA cash rate cycle. As at August 2026, competitive term deposit rates range from approximately 4.90–5.40% for 3–12 month terms at challenger banks and credit unions. Rates at the Big 4 tend to be 0.30–0.80% lower. Always check current rates on Canstar, RateCity, or Finder before investing — advertised rates can change daily.

Is term deposit interest taxed?

Yes. Term deposit interest is assessable income in Australia, taxed at your marginal tax rate in the financial year you receive it. Provide your TFN to the bank when opening the account to avoid 47% withholding tax. Interest earned within a super fund in accumulation phase is taxed at 15%; in pension phase at 0%.

What happens if I break a term deposit early?

You can withdraw before maturity with your principal intact, but the interest rate is reduced by a penalty — typically 50–80% of the agreed rate depending on how much time remains. Some banks also require a minimum notice period (31 days is common). Check the product disclosure statement before investing to understand the specific penalty that would apply.

Is my term deposit protected?

Yes. Term deposits with APRA-authorised deposit-taking institutions (ADIs) are protected up to $250,000 per account-holder per ADI under the Australian Government's Financial Claims Scheme. If you hold more than $250,000, consider spreading across multiple ADIs. Verify that any bank offering term deposits is APRA-authorised via the APRA register.

Should I choose a term deposit or high-interest savings account?

If you won't need the money for at least 3–6 months and want certainty: a term deposit typically pays more and locks in the rate. If you might need the money sooner, or want flexibility to move to a higher-rate account: a high-interest savings account is better. Compare both using the Term Deposit Calculator and Savings Account Calculator.

This article is for general information only and does not constitute financial, tax or legal advice. Individual circumstances vary. Consult a registered tax agent or licensed financial adviser before making decisions based on this information.