The banking industry in Australia has seen a growth in term deposits.

The $100 billion term deposits in September 2007 has increased to more than $200 billion in May 2010. According to Canstar Cannex financial analyst Adam Beu, putting savings locked up in the bank for a specific amount of time has been seen as beneficial for both the depositor and the bank.

Beu explained, “By using your savings, the banks don't have to buy more expensive money on the wholesale money market and the investor benefits from a much better return.” Depositors, he said, are at an advantage with the “six percent or 6.5 percent for a 12-month term.”

A significant number of depositors consider term deposits as a reliable savings vehicle because of the certainty in interest rates. Personal deposit interest rates, Beu said, “can go up or down at the drop of a hat but a term deposit means you get that rate, no matter what.”

However, the financial analyst warned term deposits have traps such as early exit costs, lower interest rates when the term deposit is renewed, and demands to open a deposit account.

The commercial services research and ratings firm recently conducted a research involving 89 term deposit providers, banks, building societies, and credit unions. The research focused on deposits of $10,000 and $75,000 across fixed terms, from two months to five years.

In the research, Suncorp-Metway Limited (ASX: SUN) emerged as Australian institution that offers the best value in term deposits.