Would A 31-Day Deposit Withdrawal Freak You Out?

Term deposits give you a higher interest rate in return for locking down your money, but just how tied down are you prepared to be? A new government proposal could see the introduction of term deposits which require 31 days notice to remove your money.

Picture by Michael Styne

Typically, a term deposit won't pay you the promised interest if you have to withdraw before the term, but you can usually do so if you urgently need the funds. A proposal is being considered by the Australian Securities and Investments Commission (ASIC) would allow banks to offer term deposits which could only be broken with 31 days notice. That could potentially lead to higher interest rates being paid, though that isn't the reason behind the move. (Global Basel III banking standards suggest banks should offer longer-term deposit periods to ensure they have a predictable pool of funding.)

Would you sign up for a term deposit knowing your money was trapped for at least a month? Prefer a different investment strategy? Tell us your thoughts in the comments.


    Ever heard of a 'run on the bank'?

    It's what they're trying to avoid.

    isn't that term deposits supposed to work?

    it's your money, you can always get it back.
    well, if the bank is still operating...

    That's not a problem for me, I only ever put an amount in my term deposit that I was prepared to not have for the term.

      Yeah, to be honest, I'd always assumed you couldn't get your money back at all until the term was over.

      The whole point of a term deposit is you have no access to your money for the term, in exchange for a higher interest rate. If you're afraid of not having access to your money, don't use a term deposit.

    I can understand this from the bank perspective - they invest your money in order to give you the extra interest, so unwinding the investment "at call" can cause a loss for them. 31 days (business or calendar?) seems a bit excessive, though.

      Not always, banks are required to maintain a certain amount of capitol against the loans they give. Deposits (especially term deposits) are a good way for banks to raise that capitol so they can then in turn lend more money. A lot of banks make next to nothing off their deposit/savings arms, but they need them in order to loan out money.

    If your term deposit is for long enough, this would barely even be an issue. Bank tells you your options six weeks before maturity instead of two weeks, you make the call...

    That would make me reluctant to use Term Deposit if this comes to effect. When I done a Term Deposit last July for a year, I was unaware that all of the sudden, my situation had changed without any knowledge and I needed the money held in Term Deposit pronto.

    I understand withdrawing before the maturity date will lead to withdrawal fees and a reduced interest rate but I'll take it. I would've been in a lot of trouble if it took 31 days.

    Luckily now, the banks like Commbank have a high-saving account that is similar to the rate of Term Deposits so I do not find the need to use a Term Deposit anymore.

    While they are at it, how about making those who buy shares hang on to them for say a week. Might fix the real problem in the financial markets, the speculators.

    The ASIC proposal is to make it easier for banks to issue these 31 day notice term deposits. Banks can already sell them, but there are higher regulatory requirements. Until Basel 3, there was no incentive for banks to sell them, but soon there will be. By lowering the regulatory requirements, it becomes easier for banks to comply with Basel 3. But consumers will still have a choice - get a term deposit with a 31 day notice period (and potentially higher interest) or a term deposit that can be broken at any time. Or an online savings account.

    If we wanted to both have an investment product that offered higher rates of return than callable loans to the financial institution and the liquidity to redeem for market value while being insured against loss from default we should be moving towards the widespread use of Certificates of Deposit or Commercial Paper.

    Creating these investment products do not negatively impact capital requirements as any desire on the part of the debt holder to redeem early can simply be done by selling in a deep secondary market. A deeper market also means lower interest rates needed to compensate debt holders for liquidity risk.

    We should be moving from over the counter to publicly traded debt instruments in any case.

    Why would you lock your money away in a Term Deposit when you could put it in an Online Savings Account such as UBank's or Rabo Direct's and get an interest rate as high or higher than a TD? and also have your money at call?

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