Term Deposit Features
A term deposit is a type of bank account which offers higher interest rates to consumers who have large amounts of cash available, which they do not need to use regularly. The money you put in a term deposit account is locked away for a set period, and interest is earnt while your cash is with the bank. They can have many advantages over regular savings accounts, such as a higher interest rate and often lower fees, if any at all.
But apart from the interest rate, what else should you look out for when you are choosing a term deposit?
Length Of The Term
Since you will be penalised if you choose to break the term deposit period and access your money earlier, you should think carefully about the length of time in which your money will be locked away. If you can live without needing that money for a while, then you should consider a longer term product, as these usually have higher interest rates than short-term products.
Generally there are two types of investment period, short-term and long-term. Periods that fall in to the long-term category are anything from 12 months all the way up to 7 years. Short-term investment periods start from 28 days, up to 1 year. Sometimes banks offer bonus interest rates to different term lengths, sometimes even a shorter period may give higher interest than a longer period. We may not display all possible period and interest rate options on MoneyBuddy.
Deposit Amount Required
All term deposits require a mininum deposit amount. The amount is dependent upon the bank and the product, but they usually require at least $500-$1,000. Some unique ones might even require $5,000 - $10,000, so check this term deposit feature first, before you start analysing the other features.
Fees & Charges
The whole point of getting a term deposit over a regular account is to save on fees and charges, so make sure you find a term deposit product with no monthly fee or application fee. That being said, there are some fees unique to term deposits that could be charged. A pre-maturity withdrawal fee is the main one, this is charged if you take out your cash before the term is finished, the bank could charge a fee or even pay you no interest at all for any time you had the money in the term deposit, make sure you look at this term deposit feature so you know the consequences if you were to break the term.
How You Get Paid Interest
Different banks and lenders will offer different pay-out frequencies, the options usually available are weekly payments, fortnightly, monthly, quarterly, semi-annually, annually or at maturity (When the investment period ends).
The more often you get paid, the less the interest rate usually is though, so if you choose to get paid your interest weekly instead of at maturity, you might make less money on your investment.
Be careful of automatic rollovers, most banks and lenders will ask you what you would like to do with your investment before the period ends, but some may not, and thus may automatically roll over your funds into a new term deposit similar to the previous one. Note down the date of maturity on your calendar so you don't forget, and also so you can shop around for other interest rates before you invest again. Some banks may provide an incentive to rollover the term deposit, such as a bonus interest rate on the next term.
To compare term deposits, see our Term Deposit Comparison Page.