A term deposit is a type of savings account where you lock away an amount of money for a fixed period and receive a guaranteed interest rate.
A term deposit is great if you’re looking for a low risk, predictable savings option. A term deposit provides certainty around the interest you will receive.
Your savings are locked away for the duration of the fixed period you choose, between one month and five years, a term deposit offers certainty that your money will grow at a specified rate.
This fixed rate means your savings goal isn’t subject to interest rate drops. On the flip side, it isn’t going to attract any interest rate rises that occur during that period of time.
With a term deposit, you need to start with at least $1,000 to $2,000, sometimes $5,000, depending on the bank. Once the investment matures for the term you’ve chosen, you receive a reminder so you can instruct your bank what to do with the money next.
Having your money locked in for a period of time can be good to help you resist the temptation to withdraw money and spend it.
Aside from that, there usually aren’t any fees involved with a term deposit; and on average a term deposit will earn higher interest than an online savings account. The interest rates on term deposits vary with different banks, and with different term periods, so it’s worth looking around for the best deal.
Things to consider
If you need to access your money before the end of your chosen investment term, there are penalties involved, and often an interest adjustment and administration fees.
You can’t add any additional money to the term deposit while it is locked away.
What to look for:
When you’re considering a term deposit, look carefully for:
- The early exit fees and conditions
- If you don’t need the money for a long time consider investing for a longer period to get a higher interest rate – remember that if rates go up during the fixed period you will not be able to take advantage of this