Term Deposit Rates Hit Multi-Year Highs: How Savers Can Benefit From the RBA Hike

A Silver Lining for Savers

While borrowers are feeling the squeeze from the RBA’s February rate hike, there’s a group quietly benefiting: savers. The cash rate increase to 3.85%, with markets pricing in potentially more rises through 2026, has pushed term deposit rates to levels not seen since 2024.

For Australians with cash sitting in low-interest transaction accounts or underperforming savings accounts, this is worth paying attention to.

Where Rates Sit Right Now

Following the February hike, several banks have lifted their term deposit rates. Competitive 12-month terms are now sitting between 4.50% and 5.00% p.a., with the best rates typically coming from smaller banks, credit unions, and online-only lenders.

Some key trends:

• Short-term deposits (3-6 months): 4.20% to 4.70% p.a.
• 12-month deposits: 4.50% to 5.00% p.a.
• 24-month deposits: 4.30% to 4.80% p.a.

The inverted yield on longer terms (lower rates for 24 months than 12 months) suggests the market expects rates to eventually come back down, but that timeline has been pushed out significantly by the Middle East conflict and its inflationary effects.

Strategies to Maximise Returns

Laddering

Rather than putting all your savings into a single term deposit, consider a laddering strategy. Split your deposit across multiple terms (say 3, 6, 9, and 12 months). As each one matures, you reinvest at the prevailing rate. This gives you regular access to funds while capturing rate movements.

Compare Beyond the Big Four

The major banks often aren’t the most competitive on term deposits. Online banks, credit unions, and mutual banks frequently offer 0.25% to 0.50% more. All deposits up to $250,000 per institution are covered by the government guarantee, so the safety is the same.

Watch the Bonus Rate Trap

Some savings accounts advertise high “bonus” rates that require meeting conditions like depositing a minimum amount each month with no withdrawals. If you can’t reliably meet those conditions, a term deposit with a guaranteed rate may actually deliver more.

Consider the Tax Impact

Interest earned on term deposits is taxable income. If you’re on a higher marginal tax rate, the after-tax return might be less impressive than it looks. For example, a 5.00% term deposit yields just 2.65% after tax for someone in the 47% bracket (including Medicare levy).

This is where strategies like investing through a lower-taxed entity, or timing deposits around the end of financial year, can make a difference. A financial adviser or accountant can help structure this.

Who Should Consider Term Deposits Right Now?

• Retirees relying on interest income, particularly those drawing from account-based pensions with a cash allocation
• First home buyers building their deposit who want zero risk of capital loss
• Anyone with a lump sum parked in a transaction account earning next to nothing
• Conservative investors looking for better returns than bonds without the volatility of shares

The Outlook

If the RBA hikes again at its March 17 meeting (which markets see as a real possibility), term deposit rates will likely climb further. Bond traders are already pricing in the possibility of the cash rate reaching 4.60% by year’s end, which would push top term deposit rates above 5.50%.

For savers, the message is simple: don’t leave cash idle. Even if you’re unsure about the direction of rates, locking in today’s rates for at least part of your savings is significantly better than the 0.5% to 1.0% many transaction accounts still offer.

Want personalised advice on where to park your savings? A financial adviser can help you build a strategy that balances returns, tax efficiency, and access to your funds. Find a financial adviser on WealthWorks.