What Happens If You Withdraw a Term Deposit Early?

Term deposit investment periods are set in stone, from a few months to several years. But that doesn’t mean that you can’t get your money back early. Canstar looks at what happens if you want to withdraw a term deposit early.

Term Deposit Early Withdrawal

When you sign up to invest in a term deposit, most financial institutions provide a cooling off period, from around seven working days to up to a month. During this period you can get your original funds back, no questions asked, and incur no penalty fees. However, you’ll not earn any interest, either, which is fair enough.

However, should you want to get your hands on your funds after the cooling-off period has expired, conditions apply. Of course, the money is yours, and banks are unlikely to refuse to return your funds early. But they are entitled to recoup their administration costs and dock the amount of interest you earn.

Of the lenders in Canstar’s term deposit comparison tool, each has their own T&Cs when it comes to the early withdrawal of term deposit funds.

If you are suffering financial hardship, some banks allow you to get your hands on your funds quickly, but most require around a month’s notice. And all banks cut their interest rates for early withdrawals. The HSBC and Rabobank even hit you with an admin fee.

However, as you can see below, the penalty for withdrawing a term deposit early with most banks is around a 2% p.a. reduction in the amount of interest you will earn on your investment.

Currently the average top 1- and 2-year term deposit rates on our comparison table are between 4.5% and 5%. So by withdrawing your funds early, you pretty much lose the extra interest offered by a term deposit.

Instead, you will earn interest on a par with most banks’ bonus savings accounts, such as the ASB’s Savings Plus (currently max 2.80% p.a) and ANZ’s Serious Saver (currently max 3.45% p.a).

Here’s a rundown of the current penalties associated with early term deposit withdrawals from the banks in our term deposit comparison tool.

Bank	Break penalties
	-1% p.a. rate reduction
	-2% p.a. rate reduction
	-2% p.a. rate reduction
	Up to -3% p.a. rate reduction
	-50% of interest earned + $50 break cost
	-2% p.a. rate reduction
	Sliding scale based on length of term <20% of term: -80% of interest rate to >80% of term: -10% of rate + $25 break cost
	-1.5% p.a. rate reduction
	-2% p.a. rate reduction
	Half of interest earned forfeited
	-2% p.a. rate reduction
	After 1 year, withdraw up to 20% with no loss of interest, if balance remains over $5000. Otherwise -2% p.a. rate reduction

NB: Rates are correct of 1/12/2022. Further T&Cs apply.
Refer to products’ disclosure statements for full information.

Term deposits: things to consider

While a high interest rate is important, it isn’t the only factor to consider when looking for a term deposit. Some other factors you might want to keep in mind include:

Fixed time period

Choose your investment term wisely. If you have to access your money early, you’ll earn a far lower rate of interest on your money, and perhaps even have to pay a penalty fee. Would you be better off putting your money into a bonus savings account with easier access?

Interest rates

They tend to vary a lot, depending on the provider and the term. As movements in both directions are possible, it pays to shop around.

Compound interest

Interest can be compounded at different frequencies, such as monthly, semi-annually and annually. The compounding frequency, the number of compounding periods and the interest rate will determine the amount of interest earned on a term deposit investment.

Often, you’ll receive less interest on accounts that pay interest more regularly, for example monthly, due to the added benefits of compound interest.

Deposit size

Check whether there is any minimum amount needed to open a term deposit, and if a higher interest rate is offered for a larger amount. It may be worthwhile depositing more than you originally considered to achieve a better rate.

Fees and charges

Are there any penalties or fees charged for early withdrawals?

Rolling over

As rates are constantly moving, it’s important to be aware that if you roll over your account, you might be fixing at a lower (or higher) amount. Also be aware that sometimes you can earn bonus interest if you agree to roll over your term deposit. So check with your provider to see what options you have, and what terms and conditions apply.

→ Related article: What is Compound Interest?

For the full rundown of all the up-to-date term deposit rates on Canstar’s database, just click on the button below.

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About the author of this page

This report was written by Canstar’s Editor, Bruce Pitchers. Bruce began his career writing about pop culture, and spent a decade in sports journalism. More recently, he’s applied his editing and writing skills to the world of finance and property. Prior to Canstar, he worked as a freelancer, including for The Australian Financial Review, the NZ Financial Markets Authority, and for real estate companies on both sides of the Tasman.