A term deposit is a deposit with a fixed term deposit that can be from a month to a few years. With this banking product, you need to understand that the money, once deposited, will be there for a period of time. It is guaranteed that the interest will not change for the duration of the deposit.
What is a term deposit?
A term deposit is an investment of money placed with a certain financial institution for a pre-determined period of time (known as the term), with a fixed term interest rate which will be paid in cash at the end of this period.
The money can only be withdrawn at the end of the term. If you want to withdraw it sooner, you will have to pay a penalty. Investors prefer term deposits for capital security and the fixed return rather than relying on the fluctuations of the share market.
As with any other banking product, you need to do thorough research and weigh the pros and cons to know if it’s suitable for your needs and preferences. You don’t want an investment product that will not help you grow your money.
Also, different banks and financial institutions offer term deposits that vary in features. Aside from the interest rate, consider looking into these factors:
- The length of time of your deposit. It usually ranges from one month to five years. You have to determine the tenure that is ideal for your situation.
- Access to your money. Whatever the tenure of your deposit is, you might want to consider the likelihood of accessing your money before the tenure ends. You don’t know what the future holds and there may come a time when you need the money sooner. If you need to access your money before the term ends, it will come with early withdrawal or “prepayment” penalties. So make sure that the money that you will put in a term deposit is not something that you will need right away.
- Australia’s Financial Claims Scheme guarantees bank deposits of up to $250,000 per customer. Make sure to check your chosen financial institution’s credit rating.
- Saving habits. When comparing term deposits, it’s also important to know your saving strategy. This will help you know the type of term deposit that’s right for you, or if term deposits are the way to go.
Experts would say that it’s wise to have a diversified portfolio, which means having several investments that will let your money work for you. Term deposit is one of them. If you want to grow your money through term deposits, make sure to check your options and weigh their pros and cons.
Do you have other tips on how to compare term deposits? Share your ideas in the comments section.