Are You a Lazy Term Depositor?

If you’re looking for ways to grow your money without risks, consider a term deposit. It’s a low-risk investment that is ideal for those who want to take the conservative route in saving and growing their money. A term deposit comes with a fixed interest rate, allowing your savings to grow just by leaving it in the account for the entire term.

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

Because of the guaranteed returns, term deposits are widely regarded as a safe way to let your money work for you. Banks usually offer a higher interest rate on term deposits compared to regular savings accounts, so if you have some money that you don’t need in the near future, you may want to put it in a term deposit to get the most out of the interest rate being offered.

Also, since your money is locked away for a certain period of time, it develops good financial habits and discipline, teaching you to be patient and resist the temptation of withdrawing your savings.

With so many banks offering term deposits, it pays to compare their features and see which account suits your needs and financial preferences. Aside from checking the most competitive interest rates, think about the term or duration that suits you best, as well as the amount of money that you’re willing to lock away.

Even if you choose a bank that’s different from where you maintain your savings account, the risks are still very low.

Here are other considerations when it comes to term deposits:

You can have a term deposit free of charge

Unlike other investment products such as funds and stocks, term deposits don’t usually come with a fee. However, some banks may require a minimum deposit amount. Also, you may be required to pay a fee or penalty if you want to withdraw your money sooner than the maturity date.

Term deposits are seen as a low-risk investment

Because of the fixed interest rate, you know how much money you’ll get come maturity date. Unlike in other investments where the chances of losing money can be significant, term deposits guarantee gains. The Australian government guarantees deposits, such as term deposits, up to $250,000 in authorised deposit-taking institutions such as banks or credit unions.

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How are Term Deposit Rates Set?

A term deposit is an investment product that comes with a fixed interest rate over its entire term. Since it’s fixed, returns are guaranteed, and the higher the interest rate is, the higher your returns will be.

When it comes to term deposit comparisons, you’ll see that term deposit rates in Australia vary significantly. That’s because several factors come into play when setting term deposit rates. In this article, we will take a look at the factors that influence the interest rate for term deposits:

Official cash rate from the Reserve Bank of Australia

This is one of the main factors that banks consider. When the RBA increases or lowers the cash rate, banks incorporate this change into the new interest rates of term deposits.

Amount of investment

The more money you deposit, the higher the interest rate you are likely to be offered. This is because banks want you to invest more so they have sufficient funds to offer loans.

Term

If you’re looking for a high interest rate, you will usually see it on term deposits that are for longer terms. Why? Investing your money for a longer period allows banks to meet capital liquidity regulations and get funding for an extended term.

Type of term deposit

Some banks offer advance-notice term deposits that usually come with higher interest rates. These enable you to withdraw your money even before the end of the term as long as you give 31 days notice and pay an early withdrawal fee.

Deposit market

Banks may offer higher interest rates for term deposits to attract new customers and gain a bigger share of the deposit market.

Bank financial position

Banks may raise the interest rates to entice new customers and help meet the growing demand for home loans. They can also offer high interest rates for longer-term deposits to lock in secure local funding instead of relying on funds from overseas sources.

When the interest is paid

In general, the more frequently interest is paid, the high the returns are. You can choose from deposits that pay interest every month, every quarter, every six months, annually or at maturity. However, there are cases where you may get a lower interest rate if the interest is paid more frequently.

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How to Compare Term Deposits

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.

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.

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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.

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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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