September 23, 2018

Use a Term Deposit Throughout the Year to Buy Your Kids’ Christmas Presents

Yes it’s a while until the silly season starts again. But…..

What is a term deposit?

A term deposit is where money is deposited with a fixed interest rate over a certain period or term.

The cost of buying your kids presents can get expensive come December. So how do you plan ahead and save money now so Christmas next year isn’t a big blow out and a big hit on your credit cards?

Why not consider a term deposit? Use savings you have now and in effect lock your money away and earn interest on it in the process.

A term deposit is where money is deposited with a fixed interest rate over a certain period or term. Having a term deposit comes with many benefits. Aside from earning more than a standard transaction account, the interest rate will not change throughout the term so your money will not be affected by any fluctuations in the market.

Financial institutions like banks, building societies, and credit unions offer different term deposits, and it is best to shop around and do term deposit comparison first to find one with features that meet your needs and financial situation. Here are some of the features of term deposits in Australia that you need to look for:

Choose the right term

This can be short-term which ranges from one month to less than a year. You can have a term deposit for 90 days, 120 days or 180 days if you don’t want your savings to be locked away for a long time. On the other hand, a long-term can be one year up to five years. If you’ve found competitive interest rates for term deposits and you don’t need your money anytime soon, then this may be the term for you.

Know the fees involved

Term deposits do not have setup fees, but it pays to ask so there are no surprise charges later on. You may, however, face a penalty fee if you wish to break your agreement sooner. It differs depending on the financial institution but it can be a huge amount so the term should be carefully considered.

Understand when and how interest is earned

The payment frequency plays a role on when the interest is calculated. For instance, for annual payments, interest is paid at the end of every year, while monthly payment comes with interest that is paid at the end of every month.

The interest can likewise be compounded or not. Compounded interest refers to when the interest is added to the term deposit on a regular basis, depending on payment frequency. Also, there are financial institutions that let you transfer the balance of your term deposit to your transaction account even if it’s under a different bank.

Got other tips on term deposit rates in Australia? You can share your ideas in the comments section below.

About the author  ⁄ Marxa Dillan

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