What are Bank term deposits?
Term deposits (known as time deposits in the United States) are a type of
money deposit that you make with a bank. What makes them different from
other kinds of high interest bank accounts is that you give the bank your
money with the agreement that you will leave it with them for a set period of
This type of account is also sometimes called a fixed term deposit and this is,
perhaps, a more accurate description, as you agree to put your money with a
bank for a 'fixed' period of time. In return for doing this, you get a guaranteed
rate of interest which is higher than that offered for a standard savings
account. Usually, the peak interest rates are attached to one-year term
deposits, with the rates sometimes dropping for longer fixed term deposits,
though this varies from bank to bank.
It is common for Australian banks to offer fixed deposit terms running from
1 month to 5 years and many banks have a minimum amount that can be
deposited at a time.
Why Put Your Money Into A Term Deposit?
Given all the economic upheaval that has happened across the globe over
the past couple of years, it can be hard to know what you do with your money,
if you are fortunate enough to have some spare. Fluctuations in the stock
market may leave you feeling that now isn't a great time to be investing in
shares and putting your money into real estate may well require more of a
lump some then you currently have to play with.
If this is the case for you, it may be worthwhile investigating term deposits, as
they usually offer a good rate of return in an otherwise stagnant or restrictive
investment market. If you have money sitting in a regular bank account and
you have no short term need for it, you may well be better off tying it up in a
bank term deposit and reaping the benefits of higher interest rates.
Things To Consider With Term Deposits
Can you spare the cash? The main thing to assess when looking at term
deposits is whether or not you are likely to need to access your cash in the
foreseeable future. The fixed term nature of such deposits means that once
you have agreed to it and handed your money over, you are locked into a
finite saving period. If you absolutely have to withdraw your money prior
to the specified date you will probably be hit with early withdrawal fees and
various administrative costs, as well as foregoing interest payments.
How long for? It is also important to consider exactly how long you are
willing to fix the term deposit for. Some banks offer fixed term deposits
from as short as 1 month to 5 years or more. The general rule is that the
longer you are willing to commit your money for, the better the interest rate,
though surprisingly, the premium interest rates can fall off for really long term
How much? Another factor is weigh is much money you are thinking of
putting into the deposit. Again, some banks offer varying rates of interest on
different cash amounts, with a larger sum commanding a greater return than a
Locked in interest rates. Ironically enough, the very thing that makes
such accounts so attractive may also be their biggest drawback in times of
economic turbulence. Once you have committed to the deposit account
and signed up for the guaranteed interest rate, both the time period that
the money will be locked in for and the interest it will earn are set in stone. Hence, even if interest rates suddenly soar for other kinds of savings
accounts, your term deposit will stay frozen at the predetermined rate.
Shop around before deciding. There are so many banks offering competing
term deposits and so many options available concerning the length and
size of those deposits that you really need to do your research and look at
a number of financial institutions. Most banks have accurate, up-to-date
websites where you will find all the latest term deposit rates, and this is a
good place to start your comparisons. Make sure you check for the length of
the fixed term, the amount of money required and the interest rate as well as
any penalty clauses.
Once you have narrowed the field down, you can either apply for the account
directly online, or follow up with a phone call or face-to-face meeting with a
representative from the bank to iron out any final questions that you might