Monthly Or At Maturity? | Interest | Mozo (2024)

When you’re trying to make the most of your term deposit interest, you’ll want to make sure you pick all the right options to suit your saving goals. One way of going about this is by selecting when your term deposit interest rate is paid.

There are a few different choices available when it comes to how often you receive your term deposit interest payments. You might prefer monthly payments, annual payouts (for longer terms) or a single lump sum payment when your term matures.

So which is the right one for you? Which one will earn you more of that all-important interest? Below we've highlighted the differences.

The frequency of your term deposit interest payments determines when you see a return on your investment. Term deposit providers will usually offer several options ranging from monthly, annually, or at maturity. However, not all frequencies are available for all terms.

Just keep in mind that some term deposit providers won’t offer a choice—you’ll only get your interest paid at maturity.

So what’s the difference? Check out this comparison of some of the key points that might sway you one way or another.

The rules of a term deposit mean that if your interest is paid at maturity, you won’t get your hands on it until then. So if you decide to have your interest paid monthly, what happens to it? Generally speaking you have a couple of options.

You can:

• Have it paid into your savings account or bank account. One of the great things about monthly interest payments is that they can go straight into your monthly budget. This is great if you don’t like the idea of waiting until your entire term is up before getting your hands on the rewards.
• Have it added to your balance. Don’t need the interest in your day-to-day spending? You can choose to have it added to the balance of your term deposit to keep earning interest. This is how you cash in on the effect of compound interest.

Be aware that these options are not always available on every term deposit offer – some banks might only offer one way or the other.

How does compound interest work?

Compound interest applies to tons of banking products, including home loans, credit cards and savings accounts. It means interest piles up quicker, which is great for savings products, but not such a bonus for borrowers.

Basically, how it works for a term deposit is that the previous month’s interest is added to your balance, meaning you earn interest on it as well and bag some extra dollars.

For a full rundown of compound interest and how it works, see our compound interest guide.

Will monthly compound interest make my term deposit worth more?

If monthly, annual, and at maturity compounding interest rates were all equal, then monthly would be a clear winner. However, this is rarely if ever the case.

This is because banks have thought of that loophole and closed it on their term deposit offers by attaching a lower interest rate when you choose to have your term deposit interest paid monthly.

It might only be a very minor difference – even as low as 0.01% – but it’s designed so that monthly interest payments won’t really earn you more money.

As you can see from the scenario above, choosing to be paid at maturity can sometimes earn you more in interest, because the higher interest rate can offset the value of compounding interest on the monthly option. Plus the longer you stow your money away, the more interest you'll earn.

Use our term deposit calculator to crunch the numbers and work out what effect these different interest rates and interest payment frequencies will have on your savings stash.

The bottom line...

...is that whether you choose to have your term deposit interest paid monthly or at maturity, it probably won’t make or break your savings strategy.

What works for one saver won’t work for another, so there’s really no wrong or right answer to which interest payment frequency is better. If you need a regular boost to your everyday budget, monthly interest might be the right choice for you, but if you’re just looking for higher interest, being paid at maturity might be better.

The important thing is to compare your term deposit options and work out what suits your saving style best.

Here are a few extra pain-free ways to boost the interest your term deposit earns:

• Maximise your balance: Generally speaking, a higher term deposit balance means more interest.
  
• Choose the right term: This will help you budget and avoid early withdrawal fees. Plus if you have your heart set on monthly interest, remember to pick a term that offers it, as shorter terms often won’t.
• Know your savings goals: Are you after a shopping blowout in two months, or a new car in two years? Working toward a goal will keep you motivated not to throw in the towel and withdraw from your term deposit early.
• Have an emergency savings fund: Keep it separate from your term deposit, maybe in a savings account. That way you won’t have to withdraw early and pay the penalty fee if something unexpected happens.
  
• Have a plan for when your term deposit matures: Don’t fall into the trap of letting your money roll over into a low interest term. Not only will it likely give you a lower return on your savings, but you’ll have to pay the early withdrawal fee to get out of it.

Term Deposit Comparison Table - last updated 5 January 2024

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^* Different interest rates apply to different amounts or different interest payment frequencies.

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