How is term deposit interest calculated?

Term deposit interest depends on the compounding frequency. At-maturity deposits use simple interest: principal x rate x term. Monthly, quarterly, or annually compounding deposits use compound interest where interest earns interest. For example, $10,000 at 5% for 12 months with monthly compounding earns about $512 — slightly more than the $500 from simple interest.

Is term deposit interest taxable in Australia?

Yes, term deposit interest is taxable income in Australia. It must be declared in your tax return for the financial year the interest is received or credited to your account. The interest is taxed at your marginal tax rate. For at-maturity deposits spanning two financial years, the interest is typically taxable when it is paid at maturity.

What happens if I withdraw a term deposit early?

Most banks allow early withdrawal but impose a penalty, usually a reduction in the interest rate. The penalty varies by bank but commonly reduces the rate by 1-2 percentage points or applies the at-call savings rate instead. Some banks may also charge an administration fee. Always check the terms before locking in a term deposit.

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Enter your deposit amount, interest rate, term, and compounding frequency to see how much interest you'll earn. Compare against a savings account to see if locking your money away is worth it.

Last verified: 1 July 2025

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