A term deposit locks in funds for a fixed period of time, although usually at a higher interest rate than online, call or savings accounts. Banks do not legally have to allow customers to break term deposits, that is, give back the money early. Whether you can break your deposit will depend on the terms of your contract with the bank. In most cases, you can do so only if the bank agrees.
Some banks offer a cooling-off period, during which you can cancel your term deposit and get back your principal without interest. Some banks require a certain period of notice before letting you break your term deposit (although proving hardship may avoid such notice).
Consequences
If the bank agrees to break your term deposit, it will probably reduce the interest rate on the funds you’re withdrawing. It may also seek to recover interest that was paid at the higher rate while it had the money. The reduction in interest may depend on how much you deposited, current interest rates and the length of the investment term.
Before you commit
Read the investment statement and any relevant terms and conditions before you agree to invest your money in a term deposit. If unclear whether there is a cooling-off period or what you may need to do to break your deposit, ask your bank first.
If there is a chance you may need the money before the term expires, consider a shorter term: some savings accounts may actually pay a higher amount, especially if the term is short
If you might need your money before the term expires, it may be better to consider a shorter term option like a savings account.
Bank’s interest rate for breaking fixed term deposits not unreasonable
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.
CASE 2Bank’s inspection referral did not expose it to liability for “leaky” house repairs
In early 2018, Joy and Blaine asked the bank for a loan to buy a house with monolithic cladding. The bank said houses with this type of cladding were prone to leaks, so it would need a satisfactory weather-tightness report before approving their loan application. The bank gave the couple the name of a builder who had carried out a weather-tightness inspection for another customer. They hired the builder to inspect the house, submitted his inspection report, received the loan and bought the house.
Investing
Our experience with investment-related complaints during the global financial crisis highlighted the fact that many complainants did not understand the products they were investing in, or the level of risk that came with the investment.
Every investment comes with some degree of risk. As a rule of thumb, the higher the return, the higher the risk. Consider the following when looking at where to i…
KiwiSaver
KiwiSaver is a retirement savings scheme. Everyone over 18 is automatically enrolled in the scheme when starting a new job. Anyone not wanting to be a member must opt out between the second and eighth week of being enrolled in the scheme. Full information is available on the KiwiSaver website.
This guide covers:
where to direct a KiwiSaver complaint
the main types of KiwiSaver complaints we rec…
Updated December 2024