When you took out your term deposit, you likely intended to keep your money invested for the entire term. But unexpected emergencies can arise, and you may suddenly need to withdraw some or all of your funds before the term deposit reaches maturity. While not ideal, it’s typically possible to break a term deposit.

Can you break a term deposit?

You can usually break a term deposit, but it’s up to the bank that holds your deposit. Financial institutions are not legally required to break a term deposit early. So, there’s always a slight possibility they’ll reject your request. Check out your bank’s early termination rules before you contact your bank.

Generally, though, you can withdraw some or all of the funds you deposited in the account before the term ends, as long as you follow the proper steps and don’t mind paying a penalty.

🤓 Nerdy Tip

If you want to open a term deposit but aren’t sure whether you’ll need to access your funds early, check the bank’s early termination policy before committing your savings to a term.

How to break a term deposit

If you absolutely need to break a term deposit, you won’t simply be able to go online and tick a box. While the process varies by bank, there are things to be aware of when you want to break a term deposit.

Make sure your bank allows for early withdrawals

Banks don’t have to break your term deposit but are usually willing to accommodate requests. Ensure they allow early withdrawals by calling your bank or checking its website to review the early termination policy.

Review rules and check fees

While reviewing the bank’s policy, check to see if there are other rules you need to follow. For example, many banks require you to give 31 days’ notice before you can access the funds. Also, look for early withdrawal fees and penalties, which most banks charge.

Start the process

Once you’ve confirmed that you can break your term deposit, and after you’ve decided that you should, contact your bank to make a request. Since every bank has its own process, you’ll probably need to call or visit a branch to speak to customer service about your next steps.

Term deposit early withdrawal fees

Banks would rather not cash out a term deposit early, so they impose some sort of penalty when customers want to break a term deposit. This could be a flat fee, an interest rate reduction, or both.

An early withdrawal fee, sometimes called a penalty fee, is a fixed cost, usually around $30.
A prepayment adjustment, sometimes called an ‘interest rate reduction’, is based on what percentage of the term has elapsed. The lower the percentage, the higher the reduction. So, the longer you keep your money, the less the bank will reduce your rate.

Some banks may allow partial withdrawal if it means your balance stays above a certain amount.

Example of a prepayment adjustment

To see how a prepayment interest rate reduction plays out in real life, let’s use an example:

Say you’ve invested $12,000 into a one-year term deposit with a 5.00% p.a. interest rate, and this is the bank’s prepayment adjustment policy:

Percentage of term elapsed	Prepayment adjustment to be applied
0% to less than 20%	90%
20% to less than 30%	80%
30% to less than 50%	70%
50% to less than 70%	60%
70% to less than 80%	40%
80% to less than 100%	20%

Here’s how much interest you’d earn if you broke the deposit at different stages of the term:

Days into the term	Percentage of term elapsed	Prepayment adjustment to be applied	Interest earned
40	10.96%	90%	$65.75
100	27.40%	80%	$164.38
160	43.84%	70%	$263.01
220	60.27%	60%	$361.64
280	76.71%	40%	$460.27
340	93.15%	20%	$558.90
Full term	100.00%	—	$600.00

As you can see, if you keep your money in for a short time, you’ll only earn interest at a much lower rate — potentially losing out on hundreds of dollars.

However, that doesn’t mean you should never break a term deposit. You might have to, and that’s fine. Just carefully consider whether doing so makes sense for your circumstance and financial goals.

When breaking a term deposit makes sense

If you only just began your term, you may be able to break the deposit without any fees. This would be if your bank offers a cooling-off period, during which you can cancel your term deposit and get back your principal without interest. Cooling-off periods are usually seven days.

If you’re further into your term, you’ll want to weigh the potential costs with how much you need the money. Reduced interest may not be so harmful if you’re in need and don’t have an emergency fund or another form of savings for cover.

If you’re experiencing financial hardship — defined as a person’s inability to meet debt obligations due to unforeseen changes and circumstances — the situation changes. If you find yourself in this position, you’ll need to send your bank a hardship letter outlining why you need to access your funds early. Most banks take these requests seriously, so by applying for financial hardship, you may be able to withdraw your funds without penalty. You’ll likely still have to wait out the notice period, which is typically 31 days.

You can find a sample hardship letter from the Financial Rights Legal Centre, a community legal centre that provides advocacy and financial resources. If you need further help, consult the National Debt Helpline by calling 1800 007 007 or visiting their website.

A term deposit — sometimes called a fixed term deposit — is an account that locks away a sum of money for a set time period, usually between one month and five years, to earn interest at an agreed-upon rate.

» MORE: What is a term deposit?

That depends on the bank and your specific situation. Typically, the penalty fee is around $30, and the interest rate reduction is determined by the time elapsed since the term began.

Generally, banks will notify you before your account matures, detailing your earned interest and options. If you don’t respond, the bank may automatically renew your funds into a new term deposit with a different interest rate.

» MORE: Term deposit maturity options