What Are You Actually Earning?

The rate on the label and the return in your pocket are not the same thing.

Inflation rose to 4.6% in the year to March 2026, driven largely by electricity prices — up around 25% after government energy rebates expired — along with sharp rises in housing and transport costs. On that measure, a 5% term deposit is delivering a real return of roughly 0.4%. That is not a complaint about term deposits. It is just the honest maths.

For clients building wealth over time, a near-zero real return is not the goal. For clients in retirement drawing down on savings, it means the purchasing power of their capital is barely holding still. Understanding this does not mean avoiding term deposits — it means having realistic expectations about what they can and cannot do.

The Lock-Up Trade-Off

Term deposits work by exchanging liquidity for certainty. You commit your money for a fixed term and receive a guaranteed rate in return. The catch is that accessing funds early typically means a break fee or a reduced rate.

For many clients, this is a perfectly sensible trade-off — if the money genuinely will not be needed for 12 months, locking it in at a competitive rate makes sense.

The problem arises when too much capital is concentrated in fixed terms without a separate liquidity buffer. Life does not always follow a plan. Property settlements, unexpected health costs, family needs, or an opportunity that requires quick access can all arrive without warning. A client with their entire defensive allocation locked into term deposits may find themselves paying to access their own money at exactly the wrong moment.

A reasonable starting point: keep at least three to six months of expected near-term expenses — or any spending you can foresee in the next 12 months — in an accessible account before committing the rest to fixed terms.

The Question Nobody Asks at Maturity

The most overlooked risk in term deposit investing is not the rate you lock in — it is the rate you face when the term ends.

If you invest in a 12-month term deposit at 5.15% today, you will receive that rate for the term. But in 12 months you face a new decision: where does this money go next? If rates have fallen by then — as most economists expect will happen at some point — you could be reinvesting at 3.5% or 4%. Over a sequence of short terms in a declining rate environment, the average return can end up well below what was available if you had locked in for longer.

This is called reinvestment risk. It does not mean longer terms are always better — they carry their own trade-offs. But it does mean that the choice between short and long terms deserves more thought than simply selecting the highest advertised rate today.

A Practical Approach: The Ladder

One way to manage both reinvestment risk and the need for liquidity is a term deposit ladder — dividing your defensive allocation across multiple deposits with staggered maturity dates.

A straightforward example: rather than placing $200,000 into a single 12-month term deposit, you split it into four parcels maturing at 6, 12, 18, and 24 months. As each parcel matures, you reassess based on your needs and the conditions at that time.

The ladder means you are never entirely locked out of your money. You are not betting on a single rate or maturity. And you have regular decision points without incurring break fees. It averages your return across different rate environments rather than concentrating the risk at a single point in time.

This is not a one-size-fits-all solution, but it is a useful starting framework for anyone holding a meaningful amount in term deposits.

What Else Is Worth Considering?

Term deposits are not the only option for income-seeking investors, and it is worth being aware of the broader landscape — not because term deposits are the wrong choice, but because a genuinely resilient income strategy usually involves more than one layer.

Short-duration bond funds and fixed income ETFs have been returning in the range of 4.5% to 5.2% annually. Unlike term deposits, most can be sold at any time without a penalty, though their value can fluctuate modestly with interest rate movements.

High-interest savings accounts can serve as a useful liquid holding position while you decide on longer-term deployment.

Dividend-paying shares can provide income with the potential for capital growth over time, but they carry significantly more variability and should not be treated as a substitute for genuinely defensive capital.

The right combination depends on your income needs, time horizon, and how much certainty you require — questions that a rate comparison table cannot answer.

What to Ask Before You Lock In

• What is this money actually for, and when might I need access to it?
• Am I keeping enough in liquid form to cover unexpected needs?
• Am I comfortable not knowing what rate will be available when this matures?
• What is the real return after inflation — and is that sufficient for my situation?
• Would spreading across different terms serve me better than a single decision?

None of these have a universal answer. They depend on your income needs, your age, your other assets, and your personal circumstances.

The Bottom Line

A 5% term deposit is genuinely better than a 1% one. But it is not a strategy in itself — it is one decision within a broader picture of how your savings are working for you.

The income environment has changed meaningfully over the past 18 months. Rates are higher. But so is inflation. The right question is not which account is paying the most today. It is how do you build an income from your savings that holds its value over time, stays accessible when you need it, and leaves you with sensible options when circumstances change.

That question is worth thinking through carefully before the next maturity date comes around.

Speak with an Adviser

If you have significant savings in term deposits — or a deposit maturing soon — it may be worth taking the time to review whether your current approach still fits. We are happy to work through the options with you.

Next Steps

To find out more about how a financial adviser can help, speak to us to get you moving in the right direction.

Important information and disclaimer

The information provided in this document is general information only and does not constitute personal advice. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser. From time to time we may send you informative updates and details of the range of services we can provide.

FinPeak Advisers ABN 20 412 206 738 is a Corporate Authorised Representative No. 1249766 of Spark Advisers Australia Pty Ltd ABN 34 122 486 935 AFSL No. 458254 (a subsidiary of Spark FG ABN 15 621 553 786)