Term deposits: secure savings accounts

Many people enjoy the luxury of having spare money that won’t be needed for a while, but where should you invest it for the best return? Term deposits provide one low-risk option to earn higher interest on your money.

What is a term deposit?

Term deposits are bank accounts that run for a fixed term and offer a fixed interest rate. The term could be as little as one month or as much as five years, and money in the account is locked away and unavailable during this period.

Available interest rates will vary greatly depending on a variety of factors, including the amount to invest and the term of the loan. Generally, the more you have to invest, the higher the interest rates will be available to you. Some banks will provide an additional bonus interest rate if the entire deposit is rolled over into a new term deposit at the end of the term.

Term deposits are secure, low-risk and convenient for calculating exactly what your return will be at the end of the investment period, as rates are fixed for the life of the deposit.  However, returns won’t be as high as with riskier investments, such as shares or mutual funds.

Most banks and credit unions offer term deposits, and they’re very easy to set up.

Tips for choosing a term deposit account

  • Shop around – you don’t need to choose a term deposit from your everyday bank if they don’t offer you the rate and features you want. However, some banks may offer you a better deal if you also bank with them
  • Be aware of when interest payments are calculated and made – some institutions calculate interest daily, some monthly, and interest payments may be made monthly or at the end of the term. maximise the return on your investment, look for a term deposit that pays interest regularly and allows you to roll that interest back into the term deposit. Or, if you need a little extra money now, you may be choose to have the interest paid into your regular transaction account
  • Choose your term carefully – make sure you won't need the cash during the term of your agreement; there are often considerable fees associated with ending your term deposit early
  • Consider other savings options – don’t just look at term deposits. If you have extra cash to invest consider online savings accounts and cash management accounts (CMAs) as well. These offer higher interest rates than everyday banking accounts and still give you flexible access to your money
  • Don’t lock away all of your savings in a term deposit – make sure you have some savings "at call" for emergencies

Term deposits (sometimes known as "time deposits") are an attractive savings option in terms of return, especially with larger investments. If you are looking for a secure, low-risk alternative to share investments and a high-yielding solution for money sat idle in your bank account, a term deposit could be the perfect fix.

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