The Trade You Are Actually Making
A term deposit pays a fixed rate for a fixed period, and in exchange you give up access to the money. That is the whole product. The rate is higher than an at-call savings account precisely because the bank knows the money cannot leave, and the question worth asking is not "what rate can I get" but "what am I giving up to get it".
Payout Frequency Changes the Answer
This calculator lets you take interest at maturity, monthly, quarterly or annually, and the choice is not cosmetic.
Taking interest at maturity leaves it in the deposit, where it earns interest itself. That is the compounding option and it produces the largest final balance.
Taking interest monthly pays it out as income. You get cash flow, but each payment leaves the deposit and stops earning, so the total return is lower. The difference is small on a short term and grows with both the rate and the length.
Which is right depends on what the money is for. Someone living off the interest wants monthly. Someone accumulating for a purchase in three years wants maturity, and taking monthly payments would be quietly giving up return in exchange for cash flow they do not need.
Choosing a Term
Longer terms usually pay more, but not always, when markets expect rates to fall, short terms can pay more than long ones, and that inversion is a signal worth noticing rather than an anomaly to ignore.
The more useful question is when you need the money. Breaking a term deposit early is possible but costly: most institutions require notice and apply an interest reduction that can wipe out a large share of what you earned. A deposit broken in month two of a twelve-month term can return less than a savings account would have.
A common structure that avoids the problem is a ladder: split the money across several deposits maturing at different dates. Something matures regularly, so you get access without breaking anything, while most of the balance stays on longer rates.
What the Headline Rate Does Not Tell You
Two things sit between the advertised rate and what you actually keep.
Tax. Interest is generally taxable as income in the year it is earned, at your marginal rate. A 5% deposit returns considerably less than 5% after tax, and the gap widens the higher your income. Compare deposits against other investments on an after-tax basis or the comparison is meaningless.
Inflation. The rate you care about is the real one, the nominal rate minus inflation. A 4% deposit during 5% inflation loses purchasing power despite the balance going up, and that is the ordinary situation rather than an unusual one. The nominal figure rising is not the same as being better off.
Where Term Deposits Fit
They do one job well: holding money that has a known destination and a known date, where losing capital would be unacceptable. A house deposit two years away, a tax bill, a planned purchase. In most developed markets deposits up to a government-guaranteed limit are protected if the institution fails, which is the reason to accept a lower return than markets offer.
They are a poor fit for long-horizon growth, where the combination of tax and inflation makes the real return close to nothing. This is general information rather than financial advice, and rates, guarantee limits and tax treatment vary by country.