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Term Deposits In Australia

By Sandy Naidu | July 28, 2008








Term Deposits - What They Are?

Term Deposits are accounts that offer fixed interest rate over a fixed term.

Terms:
The following are some of the common terms for term deposit accounts:

  • 30 days
  • 90 days
  • 180 days
  • 270 days
  • 1 year
  • 2 years
  • 3 years
  • 4 years
  • 5 years

Interest Rates:
Interest rates are the highest for a one year term and from there on as the term increases the rates decreases. Also, higher the minimum deposit, higher the interest rates offered.



Benefits Of Term Deposits


  • Safe and a reliable way to park your money and at the same time earn a much higher interest rate than your every day savings account. You know your rates up front and there is no uncertainty as such.
  • Generally, most term deposit products need only a small or no minimum deposit amount.
  • If you need to save money for a specific purpose, then term deposit is a good option. Especially if you lack the discipline - no temptation to get the money out. It is safe and tucked away for a fixed term.




Disadvantages Of Term Deposits


  • If you have to withdraw the money before the term ends then you be charged a exit fee.
  • The interest rate is fixed for the term - so even if official interest rates rise you will still earn only the interest rate that you signed up for.
  • There is no capital growth (unlike in property and shares) - you are only earning interest.




    • When Would You Invest In A Term Deposit?


    term-deposits-best-rates-australia Market Uncertainty: There is hardly any risk with term deposits. In the current investment climate, many are opting for term deposits because many investors are hesitant to invest in stock market (lots of uncertainty). Currently investors prefer the safety of term deposits.




    Temporary Parking Of Funds: Assume you have sold your house and are house hunting for a new one. Then you could invest in a term deposit, till you find your house. No volatility and hence no risk of you losing your initial investment.

    DIY Super Funds: Lot of DIY super funds use term deposits.

    Specific Goal: When you have a specific goal in mind and want to save for that then term deposit is a good solution. It slaps you with a fine if you withdraw early - and so this reduces the temptation.



    What Should You Consider Before Investing In A Term Deposit?


    • Initial deposit required
    • Interest rate offered
    • The term you want the investment for
    • How often is the interest being calculated - daily, monthly etc…Daily is a good option because more the number of times interest is calculated, higher your interest earnings
    • How often will the interest be paid - all products have the option of paying you the interest at maturity but in addition to this option many products now give you the option of being paid every month, quarterly, half yearly or annually. To get the most out of a term deposit, it is best to re-invest all your earnings back into the account.

    All big banks and credit unions offer term deposit accounts. So shop around, look into the features offered and pick the one that best suits your needs.

    One point though - if you have a mortgage, I don’t see why you would need a term deposit. The rates term deposits offer is lower than the rates you have to pay for your mortgage. So if your mortgage has redraw facility or an offset account, then just park your money in there.




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