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 time.

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 deposits.

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 lesser amount.

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 have.