September 22, 2017

How to Use a Term Deposit Account to Save for Your Next Holiday

A term deposit is an easy way to save money and capitalise on more competitive interest rates. If you are not the best when it comes to saving, a term deposit is a good option because your funds are locked in until the term ends or it reaches maturity.

It is currently a good time to take advantage of investing in a term deposit because interest rates in Australia are competitive.

If you want to save for something big, such as a holiday, here is how you can get the most out of your term deposit and maximise your profit.

The Benefits of a Term Deposit

  • The risk of losing money is minimal
  • Interest is generally going to be higher than if you saved your money in a regular savings account
  • Once you have selected an interest rate, it will stay the same throughout the life of the term

High Interest Rate

It is currently a good time to take advantage of investing in a term deposit because interest rates in Australia are competitive. However, some bank rates will be higher than others. Prior to opening an account, be sure to do your research and find out the highest rates available.

Save over a longer term

The general rule is, the longer the term, the higher the rate of interest. If you are planning a big holiday a few years in advance, now might be a good time to put your funds in a term deposit. For example, based on the current rates, on a one year term you will receive 2.9 percent, and on a five year term the interest rate is 3.4 percent.

Roll Over Rates

If you already have funds locked into a term deposit, think about not letting your money roll over automatically. Make sure you make a note of the date of maturity and search for a bank with a higher rate and transfer your funds to another term deposit. This is a little trick to get the most out of competitive term deposit interest rates in Australia.

Compound Interest

Compound interest means that you earn interest on top of interest and it is displayed as an annual percentage rate. Since your money is locked in, interest rates are automatically compounded.

For example, if you have made a deposit of $10,000 and the interest rate is set at 8 percent per annum, you will make a profit of $800 after 12 months. Interest is either paid out monthly, quarterly or annually; therefore, if your interest compounds often, the more money you will make.

Final Thought

If you want to put away money for a holiday and at the same time allow your money to work for you, a term deposit might be a good option for you. However, it might be a good idea to make sure you have a full understanding of the process by getting financial advice from an expert.

About the author  ⁄ Marxa Dillan

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