When you’re looking for a simple, fixed-rate investment for your cash, you might come across two terms that sound almost identical: a Term Deposit and a Term Account. Don’t let the similar names fool you; these are two completely different financial products with vastly different levels of risk.
The key difference lies in who offers the product and who regulates them.
A Term Deposit is a savings product offered by an Authorised Deposit-Taking Institution (ADI), which includes banks, building societies, and credit unions. These institutions are regulated by the Australian Prudential Regulation Authority (APRA).
A Term Account, often called a ‘private credit fund’ or ‘mortgage income fund’, is typically offered by non-bank financial companies. These companies are generally regulated by the Australian Securities and Investments Commission (ASIC) but are not covered by the government deposit guarantee.
The table below highlights the critical factors that separate these two investment options. The higher return offered by the Term Account comes with a significantly higher level of risk.
| Feature | Term Deposit (Bank/Credit Union) | Term Account (Private Credit Fund) |
| Who offers it | Banks, building societies, and credit unions (ADIs) regulated by APRA. | Private credit managers or non-bank lenders. |
| Underlying Asset | Your money is held as cash on the bank’s balance sheet. | Your money is loaned out, often backed by mortgages, property, or business debt. |
| Government Guarantee | Yes. Protected up to $250,000 per person per institution under Australia’s Financial Claims Scheme (FCS). | No. There is no government guarantee; your capital is exposed to the fund’s performance. |
| Risk Level | Very low (considered ‘risk free’ in practical terms if under the $250,000 limit). | Medium to high, as the return is exposed to the credit quality of the loans and market stress. |
| Liquidity & Access | Fixed term with a guaranteed return at maturity. Early withdrawal usually incurs a substantial interest penalty. | Dependent on the fund’s rules and overall liquidity. Withdrawals may sometimes be delayed or ‘frozen’ during periods of market stress. |
| Typical Returns | Around 4.0% to 4.3% (as of late 2025 research). | Generally higher, sometimes 6% to 7.5% (reflecting the higher risk profile research suggests). |
The most important takeaway for a casual saver is the Government Guarantee.
When you place money in an APRA-regulated Term Deposit, your principal (the money you put in) is guaranteed by the Australian Government up to $250,000. In the extremely unlikely event that the bank or credit union fails, the government steps in to return your money.4 This is a powerful safety net.
With a private credit Term Account, no such guarantee exists. While these funds are well-managed and can offer better returns, which is how they compensate you for taking on more risk, you are fully exposed to the risk of loan defaults or changes in the underlying asset market. If the loans they hold sour, your capital could be reduced or lost.
Neither product is inherently better; it depends entirely on your financial goal:
Don’t just look at the rate of return; always look at the underlying risk. If the rate sounds too good to be a bank product, check for the APRA regulation and the Financial Claims Scheme guarantee first. For personalised advice on how these products fit into your own financial situation, you should always speak with a qualified financial adviser.
