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There are so many saving options in Australia that the decision on a single one sometimes starts to look impossible to make. There are so many bank products in Australia that offer different features, fees, terms and interest rates and they fit a wide variety of different people with different savings needs. So, how can you decide where to put your money?
Well, first and foremost, you need to decide what your goals are and then you need to make a thorough comparison of all options available.
A popular financial product offered by banks in Australia is a term deposit account. This type of product is for clients willing to ‘lock away’ their money for a set period of time and earn interest on their money at a rate of interest offered by the financial institution where the term deposit account is held…..
A term deposit is an investment of money placed with a certain financial institution for a pre-determined period of time (known as the term), with a fixed term interest rate which will be paid in cash at the end of this period. High interest rates for term deposits are promised to consumers who happen to have larger amounts of cash available – cash that they do not need nor plan to use regularly, or in the near future.
Term deposits are generally a good product for anyone looking for a low-risk investment with a predefined investment goal.
The fixed terms as a requirement generally range from 1 month to up to 10 years. The amount of money is expected to be withdrawn at the end of the period, though with an ‘Advance notice’ placed beforehand, clients can withdraw all or part of their money if they pay a certain penalty fee. How high this penalty fee is, usually depends on how much time there is left before the agreed term ends.
Term deposit accounts are mostly used by investors who prefer receiving a set return instead of a fluctuating or uncertain rate of return offered by some more riskier financial products.
Term deposit accounts have various features available, and can change depending on the financial institution or product. These features give them a difference over the traditional savings accounts and make them very popular among clients from different backgrounds and with different financial needs.
There are six main types of Term Deposits:
All of these six types of accounts target different clients with different financial needs. In order to choose the right type, a thorough term deposit comparison is needed! By making this fixed term deposit comparison, the client can contrast the features of each and every one of the abovementioned deposits and draw a conclusion on which one fits his particular needs best.
In order to make this detailed term deposit comparison, there are some general features to be kept in mind, such as:
All features should be considered to ensure the correct term deposit product is selected. It doesn’t hurt to speak to your financial advisor when you are discussing your goals and investment strategies. They might be able to recommend a term deposit product that will be suit your specific needs.
Term Deposits have multiple advantages that make them a popular choice of savings deposit in Australia. These advantages include:
In general, a term deposit product is considered to be less risky than other investments. Particularly because they are a cash product and that fall under the Australian Government Guarantee on deposits. This means that the consumer is protected for up to $250,000 on deposits held in Australian Deposit Taking Institutions.
The interest rate on a term deposit is fixed over the term. This means that there is reassurance of what your interest rate will be and what your interest earned will be at the end of the term. It is not subject to fluctuating interest rates.
In general, because you are ‘locking’ your money away, the interest rate on a term deposit is usually more competitive than that of a standard savings account.
In general, term deposits have little or not fees upfront or on an ongoing basis. This maximises returns at the end of the term
Depending on how long you want to put your money away for, will depend on the product you choose. Therefore you are in control of the term when you decide on which Term Deposit product to go with.
Yes that’s right – because your money is locked away, it is not too easy to withdraw it if you see something that you want to buy on impulse. A term deposit account can protect you from yourself spending your savings.
All of these advantages make term deposits a popular choice for those with extra cash on the side that they are not wanting to access for a certain period of time.
Though there are many advantages or benefits of term deposits in Australia, there are still some shortcomings.
Term Deposits also have some disadvantages that clients must keep in mind before opening an account at any financial institution.
The list of disadvantages include:
The general, money put into a term deposit account can be very hard to withdraw before the term is complete
Though in many cases you can withdraw the money, that does not mean that it will all go without consequences. Early withdrawals result in high penalties and interest-loss altogether. So, once you decide to put the money in the account, the be prepared to not be able to access it before the term is up.
Generally, once you ‘lock in’ the money into your term deposit account, you cannot add more to it. Typically, you would have to wait for term to be completed before adding any additional money into the account
Regular savers can find this very problematic. There is one solution, though: opening multiple term deposit accounts with staggered maturity dates.
While it is true that term deposit accounts are considered less risky, the flip side is that they are not flexible. Unlike other high interest saving accounts with far more flexible terms, term deposit conditions are generally very rigid.
Interest Rate fluctuations are a double-edged sword: they can make you or break you! Interest rate fluctuations are especially problematic for clients with term deposit accounts. On one side, term deposit accounts can guarantee a better return when interest rates go down bad. On the other side, though, if interest rates increase during the term, you might be worse off by having your money locked away at a fixed rate.
Apart from all of the things that we have covered so far, there are some other things that can help in choosing the most suitable Term Deposit account.
Here are some of the most useful term deposit tips:
Long-term TD accounts usually come with higher interest rates. If a higher return is what you are looking for, consider ‘locking away’ your money for a longer period.
The bigger the initial deposit, the bigger the interest rate. Some higher interest term deposit products require a minimum balance, and to take advantage of this you will need to deposit a larger amount of money.
Deposit as much as you can but do not deposit everything! It is always a good idea to have some cash on the side for emergencies (since you can’t withdraw the money in the term deposit account without paying penalty!)
More often than not, user reviews will give you the real picture of the financial institution you are considering. So, do not forget to read them thoroughly.
Different financial institutions have different offers. Make sure you do your research before choosing a single one. Check out a few online comparison sites to see what offers are available in the market at the moment.
Sometimes a term deposit account might not be worth it! Thus, consider regular savings accounts instead. The interest rates might be lower but the penalties for early withdrawal are lower, too. It really comes down to your own circumstances, needs and goals.
Ultimately, with all their features, advantages and disadvantages, term deposits are great for investors looking for a reliable savings account that is considered less risky with slightly higher returns. But like most things you should take to your financial advisor as they can discuss your current situation and your goals and give you advice on which products will suit you best.
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