In the ever-shifting landscape of Australian savings products, the humble certificate of deposit (CD) is getting a modern makeover. With interest rates on a rollercoaster ride through 2024 and into 2025, savers are seeking out flexibility—enter the variable-rate certificate of deposit. But is this new breed of CD the right fit for your money? Let’s dig in.
What Is a Variable-Rate Certificate of Deposit?
A variable-rate certificate of deposit (CD) is a time deposit account offered by banks and credit unions, where the interest rate can adjust during the term. Unlike traditional fixed-rate CDs—which lock in your rate for the entire period—variable-rate CDs move with market benchmarks (like the RBA cash rate or specific indexes).
- Interest rate flexibility: Your returns can rise if rates go up, but may also fall.
- Term lengths: Typically range from 6 months to 5 years, with some providers offering even shorter or longer options.
- Early withdrawal penalties: Still apply, but policies may be more flexible than old-school fixed CDs.
In Australia, these products are often called “variable-rate term deposits”, but the structure and concept align closely with CDs seen overseas.
2025 Policy Updates and Trends
Variable-rate CDs are gaining popularity in 2025 for several reasons:
- Rising and volatile rates: With the Reserve Bank of Australia (RBA) making cautious moves on the cash rate in response to inflation and global uncertainty, banks are offering more products that let savers benefit from future increases.
- Consumer demand for flexibility: Australians are wary of locking into long-term rates when the future is so uncertain. Variable-rate CDs offer a hedge against missing out on better returns down the track.
- Product innovation: Several major banks and challenger institutions have launched variable-rate deposit options in late 2024 and early 2025, often with promotional rates that adjust at pre-set intervals.
Example: In January 2025, Bank Australia introduced a 24-month variable-rate term deposit, with the rate recalculated every quarter based on the RBA’s official cash rate plus a margin. This means if the cash rate jumps, your interest does too.
Pros and Cons: Weighing the Trade-Offs
Like any financial product, variable-rate CDs aren’t a silver bullet. Here’s how the advantages and drawbacks shake out:
Pros
- Potential for higher returns: If rates rise, your CD’s yield can rise too, outpacing fixed-rate alternatives.
- Inflation protection: Variable rates help your savings keep pace with inflation-driven rate hikes.
- Shorter lock-in periods: Some variable-rate CDs come with shorter terms or more flexible withdrawal rules.
Cons
- Downside risk: If the RBA cuts rates, your returns could drop below current fixed rates.
- Complexity: Terms and rate-setting mechanisms can be tricky to understand—always read the fine print.
- Potential for missed gains: If rates stay flat or fall, a fixed-rate CD opened at a high point may have been the better choice.
Who Should Consider a Variable-Rate CD?
Variable-rate CDs are best suited to savers who:
- Believe rates are more likely to rise than fall in the next 1–3 years
- Want a middle ground between full market exposure and fixed-rate certainty
- Are comfortable with some risk in exchange for flexibility
- May need more access to their funds than a rigid fixed-term deposit allows
If you’re risk-averse and want to lock in a guaranteed rate, a traditional fixed CD or term deposit may be better. But if you want your savings to have a fighting chance against inflation and rate rises, the variable-rate CD could fit your strategy in 2025.
Tips for Choosing the Right Variable-Rate CD
- Compare rate formulas: Some CDs track the RBA cash rate, others use a bank’s internal benchmark. Know what drives your returns.
- Check adjustment frequency: Quarterly resets are common, but some adjust monthly or only at maturity.
- Understand penalties: Even with flexible terms, early withdrawal can come with costs—read the fine print.
- Watch for introductory rates: Some products offer a higher starting rate that reverts after a few months.
The Bottom Line
Variable-rate certificates of deposit are the comeback kids of 2025, offering a way to ride the interest rate waves without diving into riskier investments. As Australia faces another year of economic surprises, these products give savers a way to stay agile—provided you’re clear on the risks and rewards. If you’re looking for a balance between stability and opportunity, it’s time to give variable-rate CDs a closer look.
