1-Year, 3-Year, or 5-Year? Which Fixed-Term Option Gives the Best Value in 2025?
The Term Length Decision
One of the most important decisions when investing in fixed-term deposits is choosing the right term length. With rates at historical highs, understanding the trade-offs between 1-year, 3-year, and 5-year terms can significantly impact your returns.
1-Year Terms: Flexibility First
Current Rates
1-year fixed-term deposits currently offer rates between 6.5% and 8.2% P.A., depending on deposit amount and institution.
Advantages
- Liquidity: Access to funds after just one year
- Flexibility: Can reinvest or adjust strategy annually
- Lower Risk: Shorter commitment reduces uncertainty
- Rate Adaptation: Can take advantage of rising rates
Disadvantages
- Lower Rates: Typically 1-2% lower than longer terms
- Reinvestment Risk: Rates may be lower when term matures
- More Management: Requires annual decision-making
Best For
Investors who need flexibility, are uncertain about future needs, or want to maintain liquidity while still earning competitive returns.
3-Year Terms: The Sweet Spot
Current Rates
3-year fixed-term deposits offer rates from 7.8% to 9.1% P.A., representing excellent balance between return and liquidity.
Advantages
- Premium Rates: Significantly higher than 1-year terms
- Balanced Commitment: Not too short, not too long
- Rate Protection: Locks in current high rates for medium term
- Good Value: Often the best rate-to-liquidity ratio
Disadvantages
- Medium Commitment: Funds locked for 3 years
- Lower Than 5-Year: Slightly lower rates than maximum terms
Best For
Most investors find 3-year terms offer the best balance. Ideal for those who can commit to medium-term investment while maximizing returns.
5-Year Terms: Maximum Returns
Current Rates
5-year fixed-term deposits offer the highest rates, ranging from 8.5% to 9.25% P.A. for qualifying deposits.
Advantages
- Highest Rates: Maximum returns available
- Long-Term Protection: Locks in premium rates for extended period
- Set and Forget: No need to manage for 5 years
- Inflation Protection: Long-term protection against rate declines
Disadvantages
- Long Commitment: Funds locked for 5 years
- Opportunity Cost: May miss better rates if market improves
- Less Flexibility: Limited ability to adjust strategy
Best For
Investors with long-term savings goals who can commit funds for 5 years and want to lock in maximum rates while they're available.
Value Comparison: The Numbers
For a $100,000 deposit:
| Term | Rate | Total Return |
|---|---|---|
| 1 Year | 7.5% P.A. | $7,500 |
| 3 Years | 8.5% P.A. | $25,500 |
| 5 Years | 9.0% P.A. | $45,000 |
The Laddering Strategy
Many smart investors use a laddering approach, splitting investments across multiple terms:
- Example: $150,000 split into $50,000 each for 1, 2, and 3-year terms
- Benefits: Regular access to funds, balanced returns, reduced risk
- Flexibility: Can reinvest maturing deposits at current rates
2025 Market Context
With rates at 8-year highs and expected to decline:
- Now is the time to lock in: Premium rates won't last forever
- Longer terms protect: 5-year terms lock in current rates
- RBA outlook: Rate cuts expected in 2025 make longer terms attractive
Making Your Decision
Consider these factors:
- Financial Goals: What are you saving for and when do you need funds?
- Risk Tolerance: How comfortable are you with locking funds?
- Rate Outlook: Do you expect rates to rise or fall?
- Liquidity Needs: Will you need access to funds?
- Investment Amount: Larger deposits may unlock better rates
The Verdict for 2025
While the best choice depends on individual circumstances, 3-year terms currently offer exceptional value for most investors. They provide premium rates (7.8-9.1% P.A.) with reasonable liquidity. However, with rates expected to decline, 5-year terms offer compelling value for those who can commit long-term.
Use our comparison service to see exact rates available for each term length with your deposit amount. The best value is the option that aligns with your goals while maximizing returns.
