Even when you’ve planned everything perfectly, there are times when you’ve got to spend on emergencies like surgery or repairs. So, if you’ve got some cash locked up in a term deposit, can you dip into your funds before the maturity date?
The short answer is: yes. However, there are some major caveats to consider …
If you intend to withdraw all or part of your funds early, you’ll generally need to provide at least 31 days’ notice to your bank. Some won’t allow you to do this online, so you should chat with a representative over the phone or visit a branch.
If you only withdraw a portion of your funds before the maturity date, make sure that the balance doesn't drop below the minimum deposit amount. When this happens, the bank has several options, including account closure or converting to a standard rate savings account.
And if there are less than 31 days left on your term, the earliest you can access it is at maturity.
By fixing your cash up for an agreed-upon period, banks have a way to finance things like home loans, credit cards and personal loans. So, to dissuade depositors from making early withdrawals, term deposits will often come with some penalties such as an:
The administration fee for breaking a term deposit early is usually a flat fee of around $30.
Often, Banks will also adjust the amount of interest you can expect to receive. For example, a reduction structure might look something like this:
| When withdrawal is made | Interest rate reduction |
| Less than 7 days | No interest paid |
| Less than 20% of term has passed | 90% |
| 20% to 39.99% of the term has passed | 80% |
| 40% to 59.99% of the term has passed | 60% |
| 60% to 79.99% of the term has passed | 40% |
| 80% to 99.99% of the term has passed | 20% |
Let’s say you’ve got $100,000 in a 12 month term deposit at an interest rate of 4.64% p.a. (the average for this length on the Mozo database) which will be paid out at maturity. Then something crops up five months into the deposit and you need that money back in your hands.
First, you’ll need to provide 31 days’ notice, so the interest rate adjustment will take into account the extra month that will have elapsed by the time you receive your money.
Here’s the term deposit example:
| Deposit | $100,000 |
| Interest Rate | 4.64% p.a. |
| length | 6 months |
| Total interest | $2,343 |
Now, let’s look at the calculation that needs to be made if an early withdrawal occurs.
In most circumstances, an interest rate adjustment is applied on a similar sliding scale to the one above and each provider will be different. For our purposes here, let’s assume that if only 50% of the term remains, a 60% deduction will apply.
In the above scenario, you’ll only end up with $938, and that’s before any withdrawal fees. So, no matter when you terminate your term deposit, you stand to lose a good chunk of interest.
Things get a bit more complicated if interest has been paid out in the interim (many term deposits of one year or more pay out interest monthly). In this case, it might need to be recovered by the bank to account for the interest rate adjustment.
Keep in mind that some banks can be lenient in certain circumstances, including if you’re experiencing extreme hardship. If that’s the case, you could receive your deposit back in full, plus all the interest that’s been accrued in the time since. The same goes if the account holder of the term deposit passes away.
You should try to keep your term deposit for the full duration of the term. Having to close it early means you’ll only reap a portion of the benefits.
Thankfully, there are some preparatory steps you can take like:
Regardless of your current circumstances, it’s always a good idea to have an emergency savings fund in case life takes an unexpected turn. Medical emergencies, redundancy, and evictions can hit at any time—so it’s generally advised to have at least three months’ worth of expenses set aside to help cushion the blow.
Long term deposits (terms of one year or more) are a pretty big commitment, so if you’re someone who tends to move money around frequently it might be best to avoid them altogether.
The key is to find the sweet middle ground in which you’re getting an attractive rate from your term deposit, while not committing to a length that’s too much for you. Right now there are some shorter term deposits starting with a ‘4’ and even '5' percent rate.
If you’d like to compare term deposits, you might want to browse our term deposits comparison page for an even more comprehensive look. And if you feel that a savings account would suit you better, there are plenty to consider over at our high interest savings accounts comparison page.
Cameron has a Bachelor of Creative Writing and History, and a background in broadcast media from his time at 2SER Radio. This diverse set of skills has informed his analytical yet creative approach to dissecting financial data and uncovering long-term trends in consumer finance. Cameron is RG146 certified for Generic Knowledge and keeps a keen eye on current and historical deposit and savings rates on the Mozo database. Cameron is also interested in tracking the investment space, particularly share trading platforms, to help Aussie consumers save and invest their money more wisely.
* Different interest rates apply to different amounts or different interest payment frequencies.
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