October 23, 2017

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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The Pros and Cons of Using a Term Deposit

A term deposit is one of the many investment products that can help grow your savings. For a lot of people, term deposits can be daunting, and with numerous information resources and factors to consider, finding the right one can be a confusing process.

To determine if a term deposit is suitable for your needs, it is best to do a term deposit comparison. Check interest rates for term deposits from several financial institutions. Another way to compare term deposits is to look at their advantages and disadvantages. In this way, you’ll be able to zero in on the term deposit that fits your requirements.

Here are some of the pros and cons of using a term deposit:

Pros

Some investors consider it low-risk form of investment

If it is under an Authorised Deposit-taking Institution (ADI) and is no more than $250,000, your deposit is guaranteed by the Australian Government.

It’s not affected by market fluctuations

Interest rates for term deposits in Australia are fixed, meaning your deposit will earn with the same interest rate even if interest rates in the market fluctuate. This also enables you to earn more than if you save your money in a transaction account.

It helps to avoid bad spending habits

With a term deposit, you cannot withdraw your money during the term, which can be months or years. This will stop you from accessing your money to buy things that you don’t really need.

Cons

You cannot use your money 

Locking your money away for a certain period of time can also be a disadvantage, especially if you really need it. Bear in mind that if you withdraw your money before the term ends, you will pay a penalty. That is why it is important to understand your financial situation first before using a term deposit so you will know if you’re capable of keeping your hands off your money until it reaches the maturity date.

It will not benefit from the increase in market interest rates

Since a term deposit comes with a fixed interest rate, it will not earn from rises in the market. To avoid this, make sure to get competitive interest rates for term deposits before committing to a particular term.

You cannot make extra deposits

It is not flexible enough to take additional deposits during the term. To address this, use several term deposits with varying terms.

Do you know other benefits and drawbacks of 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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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…..

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.

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How Opening a Term Deposit might Help Pay for Wedding Costs Later

“Do not put all of your eggs in one basket.” It’s an old saying that holds true for savings. If you’re serious about growing your money, it is not enough to keep it in a typical savings account. Let your money work for you by putting some of it in other products that can offer better returns. One of these is term deposit. It is a cash deposit at a bank, building society or credit union with interest in a certain period of time, referred to as term.

Opening a term deposit is a good idea, especially if you are saving for a major event or milestone such as a wedding. Time is your asset when it comes to term deposits so start saving early so you can grow your money. Before you know it, you’ll have money to pay for wedding costs. Here are some things to consider when it comes to term deposits:

Know the term deposit rates in Australia

The best rates are usually for longer-term deposits. Banks and other financial institutions offer different rates, so make sure to compare their offerings to get the best option. You can use fixed term deposit comparison websites to make the selection process easier.

Think about tenure

The longer you keep your term deposit, the higher the return is. The length of your investment can range from one month to five years. Assess your financial situation so you can decide which tenure suits you.

If possible, open more than one term deposit

Interest rates for term deposits change, so many investors usually divide their cash to invest in deposits at different terms. In this way, they can get the most out of the best fixed interest rates available. They also get higher returns for longer-term deposits while having access to cash on shorter-term deposits.

Prepayment penalties apply

Term deposits are ideal for money that you don’t need right now. That is why if you’re setting money aside for your wedding in the future, opening a term deposit is a good idea. However, in case you need to get your money before the maturity date, you will pay early withdrawal or prepayment penalties.

Look at the credit standing

While Australia has a Financial Claims Scheme wherein bank deposits of up to $250,000 per customer and institution are guaranteed, it is still important to check the credit rating of the institution where you want to open a term deposit.

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

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