Putting money into a Term Deposit

Why invest in a Term Deposit?

• Growth – the interest rate is usually higher than the interest paid on a savings account. Interest rates are guaranteed for a specific period of time, thereby maximising your interest earnings.
• Low risk – your money is secure compared to higher risk investments such as shares.
• Options – there is usually a choice of maturity dates on all Term Deposits: you select the term. You also choose whether the interest is paid to you regularly or is compounding: that is, rather than being paid to you separately, it is regularly added to the sum you have invested, so that, over time, you can earn interest on your interest.

Disadvantages

• Locked – you generally can’t access your money during the term of the investment (without paying a prepayment fee and losing interest).

Who invests in Term Deposits?

• Anyone looking for a secure medium to long term secure investment, e.g. people who need to ‘park’ a sum of cash for a time, such as someone who has sold their home and has yet to buy another.

If you have some money and you don't need to touch it for a while, a Term Deposit account can be useful.

Term Deposits can offer higher interest rates than other bank accounts. These rates are fixed for the term of the deposit. You choose the term, which can be anything from 30 days to five years.

So, your money works harder and is out of temptation's reach.

What to be aware of

When selecting a Term Deposit, check out:

• The length of the term – are you sure you can live without the money for this long?
• Whether you can withdraw the funds early. Some financial institutions allow you to withdraw some or all of your money before the maturity date. However, an adjustment to the interest rate and/or a fee may apply. Check out the account terms and conditions – you never know what is around the corner.
• The minimum amount that you can invest.
• The interest rate for the term you choose.
• Whether the interest earned is paid back into your Term Deposit account or another bank account.
• How often interest is paid. Some Term Deposits pay interest monthly, quarterly (every 3 months), semi-annually (every 6 months), or annually (every 12 months).