Finding an easy and secure way to grow your money might sound easier said than done, but if you’ve got some savings set aside, a term deposit could be exactly what you’re looking for.
But what exactly is a term deposit, and why might it be the right choice for you? In this article, we'll help you understand what a term deposit is, the benefits of a term deposit, how it stacks up against a high interest savings account, and help you decide if it’s the right choice for you and your savings.
Understanding Term Deposits:
Imagine this: You’ve got some extra cash you’ve saved up and you’re not planning to spend it anytime soon. Perhaps you’re saving for something specific like a house deposit, a holiday, or even school fees, or maybe you just want to see your nest egg grow.
A term deposit is a fixed-term investment offered by banks and financial institutions. It involves depositing a certain amount of money for a predetermined period (the ‘term’), anywhere from one month to few years. Once you've placed your money in a term deposit, you won't be able to add additional funds or remove any money from the balance – without incurring a loss of interest. During this time, your money earns a fixed interest rate, which is usually higher than what you'd get from a regular savings account. Once the term is over, you will have full access to your savings which you can either choose to withdraw or reinvest in another term deposit.
Benefits of Term Deposits:
- Guaranteed Returns:
Term deposits offer a guaranteed return on the money you’ve deposited. While your savings are locked away securely, your money will be growing steadily. All you must do is sit back and wait – that’s it!
- Predictable Earnings:
With a fixed interest rate, it’s easy to work out exactly how much you will earn at the end of your term deposit. Once you know how much you’re depositing and the interest rate and the timeframe of your chosen term deposit, you can use our online Term Deposit Calculator to work out how much how much you will earn
- Low Risk:
Term deposits are generally considered low-risk investment, making them a safe haven for your money. They are considered low risk because you’re guaranteed to earn interest on the money you’ve deposit making them a great option for careful savers. If you invest with an approved deposit-taking institution such as an Australian bank, you’ll get the additional security of the Australian Government’s deposit guarantee.*
Whether you choose a couple months or a couple years, the fixed term is great for those with financial discipline, or even those who need to avoid the temptation of dipping into their savings as you commit to leaving your money untouched for a specified period.
Term Deposit vs. High Interest Savings Account:
While both term deposits and high interest savings accounts help to grow your savings, they have distinct differences that may help to determine if one is better suited to you than the other.
- Patience pays off: Suitable for those who don't need immediate access to their funds and will generally offer a higher interest rate than high interest savings accounts.
- Commitment: Once you’ve committed to the term, you will have limited flexibility accessing your funds. If you do need to access the money before the term is up, 31 days' notice is generally required and less interest will be earned on the new lower amount.
High Interest Savings Account:
- Cash at your fingertips: Easy access your funds to access money as you need.
- Flexibility: While you may not earn as much as a term deposit, it’s ideal for those who want growth and accessibility.
Is a term deposit right for you?
It all comes down to your personal circumstances and how you use your money. A term deposit can be an effective ‘set and forget’ tool for growing your savings with a predictable outcome.
The minimum savings required to open a term deposit generally starts between $1,000 and $5,000 with the duration of the term anywhere between 1 month and 5 years. If you already have a sum on money that you know you won’t need to access immediately then a term deposit usually has no set-up or account fees and will offer a higher interest rate compared to most transaction and saving accounts to compensate for your funds being out of reach throughout the term.
Interested in a term deposit? Find out more or apply for an Auswide Bank Term Deposit.
If a savings account better suited to you, find out more or apply for an Auswide Bank savings account.
This information provides general advice only. We do not provide advice about this product based on any consideration of your personal objectives, needs or circumstances. A target market determination can be obtained from our website auswidewidebank.com.au *Up to $250,000 of deposits in ‘protected accounts’ held by an entity with Auswide Bank are covered under the Financial Claims Scheme. Information on the Financial Claims Scheme is available at www.fcs.gov.au.