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How to find the best term deposit rates

A term deposit is an account that you place your money into for a specific length of time, or a ‘term’. Because you are guaranteeing that your money will be there for a longer period of time, you normally receive a higher interest rate on a term deposit than you would a savings account. Accessing this high rate requires shopping around for the best deal and avoiding some of the common traps of term deposits.

Advantages and disadvantages of a term deposit

The main advantage of a term deposit is that you have the ability to lock in a high interest rate. This rate is fixed for the term and your return remains the same, giving your certainty about how your money is growing. They can also be fantastic for people who need help with saving and maintaining financial discipline. When you’re saving for a long term goal, such as a home deposit or a new car, it can be helpful to have your money stored somewhere you can’t touch it.

However, the downside to term deposits is that there are penalties associated if you do need to ‘break’ the term and access your money early. If you have an emergency situation and require your funds, the financial institution managing your term deposit will charge you a fee to do so. This fee may be larger than the interest you’ve earned on your deposit, so you end up in no better financial situation than before.

How to find the best term deposit rates

When you’re looking for a term deposit, it pays to shop around to find the best deal. After all, you’re locking your money into one place for a period of at least a few months, and you don’t want to find that you didn’t get the best rate available.

The rate will usually be better for a longer term, so if you’re saving for a long term goal or you know you won’t need this money for a while, opt for a period of several months. However, consider all the terms available, as sometimes financial institutions will have deals on certain time frames – offering a higher rate for nine months, for example.

You can compare term deposits here.

Making the most of your term deposit

Before you commit to a term deposit, there are some things you should consider to make sure you’re getting the best return from your investment. First, the term deposit is useless if you need to withdraw your money early, so make sure you’ve budgeted to be without this cash for the long term. It’s a good idea to set up a separate emergency fund as well, in case you get stuck.

The more money you can put in your account, the better the returns will be. A larger deposit can get you a better rate with the banks too. Maximise your balance by saving up as much as possible before opening your term deposit.

When your term finishes, or ‘matures’, banks will often rollover your deposit into a new term with a lower rate. Make a plan for what to do with your money before the term is up and consider if you want to reinvest in another term deposit or use your savings in another way.

Sally Writes 23 Dec 2020