What is a business term deposit?

A business term deposit holds a set amount for a fixed term at a fixed rate, in the name of a company, partnership, trust or sole trader. It works in the same way as a personal term deposit: the rate is locked in on the day the money is deposited, the interest is known in advance whichever way market rates move, and the money is returned with interest at maturity. Terms commonly run from one month to five years.

Why businesses use term deposits

Term deposits suit money a business can set aside for a known period: a tax provision, funds held for a planned purchase, retained profits, or a reserve the business does not expect to touch. Many businesses split surplus cash between a business savings account for working capital and term deposits for the balance, sometimes with several deposits maturing at different dates so part of the money becomes available regularly. A term deposit is also a common security for a bank guarantee, such as the one a landlord asks for under a commercial lease.

Access, notice and maturity

Withdrawing before maturity generally requires notice of up to 31 days and reduces the interest paid, usually on a scale that depends on how much of the term has passed, and some providers also charge an administration fee. At maturity, many deposits roll over automatically into a new term at the provider’s rate on that day unless instructions say otherwise, and a grace period, often around seven days, allows the term to be changed or the money withdrawn without penalty. Interest can be paid at maturity or, on longer terms, monthly, quarterly or annually, with a slightly lower rate usually applying to more frequent payments.

The deposit guarantee for a business

Deposits with an authorised deposit-taking institution are protected by the Financial Claims Scheme up to $250,000 per account holder, per institution. A company, a partnership and the trustee of a trust are each an account holder in their own right, so a company’s deposits are counted separately from those of its directors. A sole trader is not separate from the person, so their business and personal deposits at the same institution share one cap. Banks that operate several brands under one banking licence count as one institution.

How business term deposits compare

The rate for the term that suits the business’s cash flow, the minimum deposit, how often interest is paid, the early withdrawal terms and what happens at maturity are the figures that separate them. Deposits can be compared side by side, personal term deposits are on the term deposits hub, and the guide to breaking a term deposit early sets out how the early withdrawal reduction is calculated.