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Are Term Deposits Worth it in 2021?

Are you considering investing your money in a term deposit this year? Unfortunately, term deposits don’t offer the value that they used to; ten years ago you could find a term deposit with an interest rate over 6%, but now most are around 2% or even lower. Continuous cuts to the cash rate by the Reserve Bank of Australia have resulted in interest rates being some of the lowest ever seen.

But it’s not all bad news. If you have a lump sum that you’re hoping to grow over the next few years, a term deposit is still a great option. Take a look at the reasons why a term deposit might be worth considering in 2021.

Providers Are Improving Rates

While 2020 was a bad year for those looking to invest in a term deposit, things are turning around in 2021. Last November and December saw increases in rates from some providers. It’s important to remember that providers are competing for your business, so it’s in their interests to offer term deposit rates that are attractive to savers – which means better rates might be on the horizon!

Term Deposits Offer A Fixed Interest Rate

If there’s anything that we’ve learnt from the past twelve months, it’s that the world – and finances – can be volatile. With that in mind, locking in a set interest rate for a longer period can be a good idea to offer you some certainty and consistency. While rates on savings accounts are variable, term deposits allow you to stick with a set interest rate so you can better predict your money’s growth over the period of your deposit. This is a great option to offer you the security of knowing exactly how much interest you will earn.

Low Maintenance Saving Option

Term deposits are a safe and easy investment option that generally don’t require the same level of work as other methods of growing your money. When you choose to put your money into a term deposit, it is essentially a ‘set and forget’ saving; just sit back and watch your money grow. At the end of the term, you can either have the amount paid out and collect your money plus accrued interest, or you can roll it over into another term (remembering to find another competitive interest rate).

Backed By A Government Guarantee

You may not realise that your term deposit is guaranteed by the government. All term deposits are supported by the Financial Claims Scheme, which means that if you choose to invest your money with an authorised provider, you are backed up to the value of $250,000 in the event that the provider stopped operating. This makes term deposits one of the safest investment options possible, with more security than the share market, investment bonds or property. That will certainly help you sleep at night!

Forced Savings For A Rainy Day

One of the biggest advantages of a term deposit is that it makes you save money. Once your funds are locked into the term, you can’t access them until the term ends without incurring penalties. So if you’re someone who struggles to save or finds themselves dipping into their savings often, a term deposit is a great way to lock away your money for six months, twelve months, or even longer. If you have a long term goal in mind, like a home deposit, it’s the perfect way to ensure you get the amount you need.

Sally Writes 15 Mar 2021

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