You’ve probably heard of term deposits, but do you know exactly what they are and how they work? If the answer’s no, it’s possible that you’re missing out on a great way to earn interest on your savings. Read on to discover whether a term deposit could be the right option for you.
What is a term deposit?
A term deposit is a low-risk form of investment which involves you locking away a sum of money for a set length of time. Because you get a guaranteed rate of interest, you know exactly how much your return will be at the end of the term.
How interest on a term deposit is calculated
A term deposit’s interest rate depends on the size of your balance (the minimum is usually around the $5k mark) and the length of the term, which is usually between one month and five years. Additionally, some financial institutions offer higher interest rates to older investors. For example, Great Southern Bank offers Platinum Plus rates for customers aged over 55 years.
To see what interest rate you might get on a Great Southern Bank Term Deposit, check out our online calculator.
The benefits of a term deposit
The main benefit of a term deposit is the guaranteed return. Unlike other forms of investment such as shares and property, term deposits are insulated from market volatility, so you can be secure in the knowledge of how much you stand to gain. Speaking of security, term deposits are backed by a government guarantee up to the value of $250k, so they’re particularly appealing to those who like to play it safe.
What are the disadvantages of a term deposit?
The main disadvantage is that you probably won’t be able to access your money for the duration of the term. Well, you might be able to (it’s at the lender’s discretion) but doing so before the term’s maturity date means an early withdrawal interest adjustment will likely apply.
The other thing to be aware of is that, unlike a savings account, you won’t benefit if interest rates go up.
When is the interest paid on a term deposit?
This depends on the term deposit provider but is usually monthly, annually, or when the term reaches maturity. Great Southern Bank Term Deposits offer the choice of having interest paid monthly or at the end of the term, with terms longer than a year being paid annually. It’s worth noting that the interest rate is slightly higher if paid at the end of the term rather than monthly.
Who is a term deposit suitable for?
Term deposits are a solid investment option for people who are sure they won’t need to access their funds for a while. These are often (but by no means exclusively) older customers who have paid off their home loans and are looking to earn the best possible return on higher deposits.
Deciding which term length to choose
Great Southern Bank Term Deposits range from one month all the way up to five years. Terms at the lower end of the scale can be handy if you have reached, or are close to reaching, a short-term savings goal such as an overseas trip. Their ‘set and forget’ nature offers a good way of earning interest on savings while ensuring you don’t spend them.
Longer terms might suit someone with savings they have no imminent plans for. Depending on the size of the investment, it might even be possible to live on the interest while deciding what to do with the lump sum.
Are there additional fees involved in a term deposit?
Great Southern Bank Term Deposits come with $0 monthly account or application fees. Other financial institutions may differ though, so make sure you check (or just get one with us instead).