January 16, 2018

Term Deposit Traps to Look Out For

Term deposit is a cash investment at financial institutions such as banks or credit unions. There is an agreed upon interest rate over a certain period that usually ranges from one month to several years. The interest is guaranteed to be fixed for that period.

Cash rate in Australia is low but still, term deposits have always been popular for investors who prefer security for their capital. Term deposits are safe but in a low-rate environment, the rate that you earn is reduced by some costs. So, before you commit to a term deposit, here are some of the things that you should be aware of:

Early withdrawals

This can bring a great damage to the amount of interest you earn as there are penalty fees involved and the bank can reduce the amount of interest you’ll earn. So, when your money is on a term deposit, just wait for the term to end.

Automatic renewal

This happens when your term deposit expires. Most financial institutions will give notifications for maturity options such as withdrawals or reinvestment. But it is always up to you to give a decision prior to maturity. If you fail to do so, your account will be automatically renewed for the same amount and term. The bad thing about this is that the interest will most likely be set at a lower rate.

Term deposit duration

The length of term deposit has its own risks. The risk in term deposits within short periods like 3-5 months is that the interest rates may go down and it can give you a very hard time to renew for a better rate in the future. In such cases, long-dated term deposits in 3-5 years are a better choice.  However, the risk is that interest rates may rise while your fund is kept at a lower rate.

The 31-day notice period

This is commonly required by banks if you plan on withdrawing early from your term deposit. This is a problem because you can be penalized with interest and some fees.

Sticking with your bank because it’s easy

This is a big mistake because you miss out on a lot of potential interest. If your regular bank is a major one, it generally offers lower rates. It is always wise to shop around first before making a term deposit. Look for another bank that will pay your term deposit interest into your savings account with your regular bank.

Got other ideas on term deposits? Share your insights in the comments section.

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Understanding Term Deposits Automatic Rollover

A term deposit is a savings and investment product wherein the money you deposited will earn a fixed interest rate over an agreed period of time, also called term. It can be for one month, one year, or even up to five years. It is a product used to deposit your money and grow your wealth, and since you cannot access your money throughout the term, you can build your savings and help develop healthy financial habits.

When it comes to term deposits in Australia, you may come across the term automatic rollover. It refers to whether or not your term deposit will automatically roll over into a new term as soon as it reaches its maturity date.

In this article, let’s delve into this feature so you will better understand the concept and avoid inconvenience later on.

When it reaches maturity, check if it is still an appropriate investment for you, and if the returns remain competitive. If not, then maybe it’s time to shop around and see which bank offers better interest rates for term deposits.

Your bank or credit union will inform you once your term deposit reaches maturity. They will let you know how much interest you’ve earned as well as your options.

If you do nothing, that’s the time when the automatic rollover will occur. A study has shown that most banks implement a dual pricing system wherein they automatically roll over maturing term deposits into new ones with the same term and the existing interest rate, unless you, as the depositor, intervene. Bear in mind that the new term deposit may have a lower interest rate, which surely isn’t what you want for your investment.

Inform your bank right away if you’re not satisfied with the new interest rate. Otherwise, you may need to pay a fee should you decide to get out of the new term deposit after the automatic rollover. That’s why it’s important to do some term deposit comparison before the maturity date so you can look for competitive interest rates.

In the event of an automatic rollover, the bank will disclose the new interest rate. They will also include the interest rate schedules in their rollover letters.

Do you have other ideas when it comes to automatic rollover of term deposits in Australia? Share your insights in the comments section.

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Term Deposits vs Online Savings Accounts

Do you want to buy a new car or your dream home in the future? Go on a holiday? Save up for retirement? No matter what your life goal is, there are several ways to save up for it.  You can go for online savings accounts or have a term deposit.  These are just two of the many saving and investment products that you can look into to build your savings.  But which one is right for you? In this article, let’s take a look at the pros and cons of term deposits and online savings accounts:

Term Deposits

A term deposit involves a fixed interest over the course of the term, so it offers a greater level of certainty on the amount of interest that you will earn. It has become a popular option among those who want to save money. Just go to your bank, open a term deposit, and watch your savings grow. Here are the other advantages as well as the drawbacks of term deposits:

Pros of Term Deposits

  • The interest rate of a term deposit will not be affected by market fluctuations.
  • You cannot access your money during the term, thus it enables you to save and develop better financial habits.
  • There are no fees involved, unless you withdraw your money sooner.
  • It’s easy to do and understand, plus it’s low maintenance.

Cons of Term Deposits

  • You cannot take advantage of higher interest rates in the market which is why it is important to check the interest rates for term deposits carefully. Make sure that they’re competitive enough that you will earn more from the interest. It is better to do some term deposit comparison from several banks so you can make a better decision.
  • It requires a minimum deposit.
  • Term deposits are less flexible compared to online saving accounts.

Online Savings Accounts

Thanks to technological advancements, we can do a wide range of transactions using our computers and smartphones.  In terms of banking and managing finances, most Australian banking customers use online banking. Here are the pros and cons of having online savings accounts:

Pros of Online Savings Account

  • Access to your accounts is faster and more convenient.
  • You can access your money anytime.
  • In most cases, there is no minimum deposit required.
  • Your money earns compound interest.

Cons of Online Savings Account

  • Your bank can change your rates.
  • Your money is easy to access, this can mean you may be tempted to withdraw your money. This can lead to penalties.
  • There is no guarantee of how the rates will perform.

Do you have other ideas on term deposit rates in Australia? Share your tips in the comments section.

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Term deposit penalties – What happens if you withdraw before maturity?

One of the safe and secure ways to save and invest money is term deposit. With a fixed interest rate, you’ll receive guaranteed returns after the term. With so many banks offering this investment product, it is better to do some term deposit comparison. Check the latest term deposit rates in Australia before signing anything so you’ll get the most out of your investment.

But what happens if you withdraw your money before maturity or before the term ends? You need to pay the penalty. In this article, take a look at some of the things that you need to know about term deposit penalties:

  • If you need to withdraw your money in the term deposit before its maturity, you may need to give advance notice to your bank. This can be 31 days. However, there are some banks that process early withdrawal requests as soon as they receive them. Make sure to check the terms and conditions so you’ll know what to do in case of early term deposit withdrawal.
  • Banks vary in the way they calculate the penalties for those who wish to withdraw their money before the term ends. Some may deduct a percentage from your interest rate. There can also be a break cost or break fee which relies on factors such as the bank’s current interest rate, the rate when you started the term deposit, as well as the amount of money in your term deposit.
  • The minimum balance limit plays a role in term deposits. If you intend to withdraw a partial amount and your account balance goes beyond the minimum limit, your term deposit account will be closed automatically. The reduction of the interest rate will likewise be applicable to the total account balance.
  • Another fee to consider should you wish to withdraw your money before maturity is the check drawing fee. There are financial institutions that pay back the interest earned through a bank check. They can also transfer the money into your transaction account. The check drawing fee comes in when you decide to receive your money through a bank check.
  • Term deposit penalties can be hefty, so make sure to think about the situation carefully before withdrawing your money.

Avoid paying term deposit penalties. Before getting a term deposit account, make sure that you will not need the money for a certain period of time.

Got other ideas on term deposits in Australia? Share your insights in the comments section.

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How Does a Term Deposit actually Work?

Aside from your savings account, there are several investment products that you can consider where you can keep your money and let it work for you. One of these is the term deposit.  It is a form of cash investment where you agree on an interest rate for a term or a fixed period. It is being offered by banks, buildings societies, and credit unions.

A term deposit is a great cash investment that offers a stable return of your hard-earned money. How? These are some of the things that you can expect when you open a term deposit:

  • Fixed interest rate. There is an interest rate that you will agree on when you open a term deposit. This is fixed, meaning it will apply over the duration of the term, regardless of market fluctuations. This ensures that you’ll have a stable return. However, you will not benefit in case the market interest rate increases, that’s why it is essential to do some fixed term deposit comparison and choose which offers competitive rates.
  • Term. It is up to you on how long your money should be locked away. It can be a short term deposit wherein your money will be invested from one month to less than a year. It can also be a long term deposit wherein your money will be locked away from one year for up to five years. Of course, the longer you allow your money to be on this cash investment, the higher the interest rate will be.
  • Fees. Opening a term deposit does not require any startup or ongoing fees. Bear in mind, though, that you will have to pay a penalty should you decide to withdraw your money sooner. The interest rate will also be reduced.

To avoid penalties, consider your financial goals to see if term deposit is suitable for you. For instance, if you’re planning to buy a house in a few years and you want your money to yield better returns then opening a term deposit may be a great way to grow your money.

Another consideration is the market. It is important to check the interest rates for term deposits of banks, building societies, and credit unions. Remember that you will be stuck to your chosen interest rate over a certain period, so make sure to check the rates first.

Do you have other ideas on term deposit rates in Australia and fixed term deposit comparison? Share your insights in the comments section.

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Finding the Term Deposit that Suits You

When it comes to saving, it is often said that you should never put all of your eggs in one basket. This only means that you should not put all of your savings in one account or investment product. This is to minimise risk of losses and ensure that your money will give you much better returns. There are so many “baskets” or savings and investment products to choose from, and one of them is term deposit.

Term deposit is a form of investment that comes with a fixed interest for a specific period of time, or term. A lot of people opt for a term deposit since it offers flexibility on the range of terms, the fixed interest rate will not be affected by market fluctuations, and it helps you to be more disciplined when it comes to saving. Your money is locked away for a certain period, so you cannot easily access your money in the term deposit.

Here are some things to take into account to find the term deposit that suits you:

Interest rates

The interest rates for term deposits are a main consideration when looking for a term deposit that suits your needs and financial situation. There are a lot of banks that offer term deposits so make sure to find a fixed interest rate that offers guaranteed and better returns. It helps to do a term deposit comparison so you will be able to check their features and make a more informed choice.

Term

Another thing to consider is the term or the specified period for the term deposit. Short term deposits can be 30 days up to less than a year, while long term deposits can be one year up to five years. Upon checking the offerings of various banks, you’ll find out that the longer the term is, the higher the interest rate tends to be.

Payment frequency

It is also important to determine how often the interest is paid on your money. It can be monthly, quarterly, annually or even at maturity.

Fees

Getting a term deposit doesn’t come with a setup fee or ongoing fees. However, take note that there may be a charge should you withdraw your funds sooner. Of course, there will also be a reduction on your returns.

Got other ideas on term deposit comparison and interest rates for term deposits in Australia? Share your insights in the comments section.

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What Does the ‘Term’ Mean in Term Deposits?

Banking terms can sometimes be confusing, and with many things to be aware of, opening an account or getting an investment product doesn’t look too easy. In some instances, you may have encountered the phrase “term deposit”. In this article, let’s get to know more about it and learn things to take into account should you decide to get one.

A term deposit is a long-term investment product that enables you to put away money with an agreed fixed rate for a fixed amount of time. It’s a popular cash investment for security and higher returns. The “term” in term deposit refers to that period when your money will be saved and put away. It is a pre-determined period, which means that in the process of getting a term deposit, you will decide and agree on how long your money will be deposited and when you can access it.

Here are other things that you need to know about term deposits in Australia:

The term comes in two types

You can choose either a short-term or long-term deposit. Short-term deposits range from one month up to less than a year. You can choose to lock your savings away for 30 days, 60 days, 90 days, 120 days or 180 days etc. On the other hand, long-term deposits can be from one year up to five years, or even seven years. If you are able to get a competitive interest rate and can manage without your savings for a long period of time, then this term may be good for you. It depends on your personal circumstances and goals.

Look for competitive interest rates for term deposits

A term deposit comes with a fixed interest rate. This means that once you lock in a rate for the entire term, your earnings will be based on that interest. It will not be affected by market fluctuations. That is why it is important to get a competitive interest to earn high and steady returns.

Watch out for the penalty fee

You usually don’t have to pay setup and/or ongoing fees when you get a term deposit. However, expect to pay a penalty in the event that you want to access your money before the end of the term. Penalty fees vary depending on the bank or financial institution. Make sure to ask about the penalty charge should you need to break the term deposit agreement.

Term deposits are a great way to save money and make it work for you. Like in other investment products, it pays to know your financial goals so you can better choose the right term deposit for you.

Do you have other tips on term deposits and interest rates? You can share your ideas in the comments section below.

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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.

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.

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