Bank’s interest rate for breaking fixed term deposits not unreasonable

Breaking a term deposit,
Eric had a trust that put large sums of money on various term deposits at the bank, with the interest paid quarterly. In early 2022, the trust discussed placing a large sum of money on deposits for a year, noting it might need to break the deposit early for a property purchase. The bank advised it could exercise discretion to do this but it would result in a lower rate of interest being applied. The trust went ahead and invested the funds. Some months later, it bought a property and asked to break two of its term deposits before their maturity dates to finance the purchase. The bank agreed, noting that a one-month notice period applied, and that it would pay a lower interest rate of 0.05 per cent.
May 2023

Eric complained that the bank’s earlier advice that a "lower rate" of interest would be applied was misleading and that its terms and conditions about the interest rate were unfair and unreasonable, as well as amounting to a penalty, and were therefore unenforceable.

Our investigation

In investing its funds on term deposit, the trust had agreed to invest the funds for a fixed period on the bank's terms and conditions, which made clear, in reasonably plain language, that early withdrawals would be at the bank's discretion, and that it would apply a lower rate of interest to the amount withdrawn early.

We considered the bank's terms and conditions fair. They referred to guidance on the bank's website about the reduced interest calculation. We considered 0.05 per cent to be not an unenforceable penalty. We were satisfied the bank had complied with its terms and conditions, when it paid the funds to the trust.


We did not uphold Eric’s complaint.

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