In an era where Australians are hunting for both safety and yield, the humble Certificate of Deposit (CD) is making waves again. As the Reserve Bank of Australia (RBA) continues to juggle inflation with cautious rate adjustments in 2025, many are asking: are CDs finally back in fashion? Here’s what you need to know about these time-tested savings instruments, how new regulations might impact your returns, and whether a CD should earn a spot in your financial toolkit.
What Is a Certificate of Deposit (CD) and How Do They Work in Australia?
A Certificate of Deposit (CD) is a fixed-term deposit product offered by banks and authorised deposit-taking institutions (ADIs). You invest a lump sum for a set period—ranging from one month to five years—in exchange for a fixed, often higher, interest rate than regular savings accounts. At maturity, you receive your principal plus the agreed-upon interest.
- Fixed Terms: Typically 3 months to 5 years
- Fixed Interest: Locked in at purchase, immune to market fluctuations
- Early Withdrawal Penalties: Funds are illiquid until maturity; breaking the term can mean forfeiting some or all interest
Unlike the US, where CDs are a household name, in Australia, they’re often called term deposits. The essential structure is the same. In 2025, with the RBA cash rate hovering around 4.35% and banks competing aggressively for deposits, advertised CD rates can reach as high as 5.1% for 12-month terms at major banks like NAB and Westpac.
2025 Policy Updates: APRA’s New Rules and How They Impact You
The Australian Prudential Regulation Authority (APRA) introduced updated liquidity and capital requirements for banks in late 2024, affecting how institutions manage deposit products. For savers, these changes mean:
- Greater Security: Stricter oversight means ADIs are even more likely to honour your deposit at maturity
- Rate Competition: Banks are under pressure to attract and retain retail deposits, so expect sharper rates and more frequent promotional offers
- Government Guarantee: The Financial Claims Scheme (FCS) continues to cover up to $250,000 per person, per institution, making CDs among the safest investments available
Some banks are trialling ‘green’ CDs, where your deposit is earmarked for sustainable lending. These sometimes carry slightly lower rates, but appeal to Australians keen to align their savings with their values.
Should You Invest in a CD in 2025? Pros, Cons & Real-World Scenarios
CDs suit Australians who want certainty and can lock away funds for a fixed period. Let’s break down the key benefits and drawbacks:
- Pros:
- Predictable returns unaffected by market volatility
- Government guarantee up to $250,000
- Competitive rates, especially for longer terms or special promotions
- Cons:
- No access to funds until maturity (without penalties)
- Interest rates could rise during your term, leaving you locked into a lower rate
- May not keep pace with inflation if rates fall or inflation spikes unexpectedly
Example: Sarah, a Sydney-based teacher, invests $50,000 in a 12-month CD at 5.1%. She knows she won’t need this money for the year and enjoys peace of mind knowing her return is guaranteed, regardless of how the share market or RBA rates move in the meantime.
For those needing flexibility, consider a CD laddering strategy—staggering multiple CDs with different maturity dates. This way, you gain regular access to portions of your savings while still locking in higher rates for longer terms.
The Bottom Line: Are CDs Worth It in 2025?
With APRA’s tighter oversight, robust government guarantees, and banks eager for your business, CDs offer a compelling blend of safety and return in 2025. They’re not for everyone—especially if you crave liquidity or want to chase higher returns in shares or property—but they’re a solid choice for conservative savers or anyone looking to diversify their cash holdings amid ongoing economic uncertainty.
