When the Reserve Bank of Australia changes the cash rate, it’s usually a good or bad sign for those considering term deposits.
If the cash rate is high so will be term deposit rates. Term deposits let you to place a larger sum of money into a special savings account where it will acquire a higher rate of interest over a set period.
Compare term deposits below
What are the benefits of a term deposit?
As well as attracting better rates, term deposits are guaranteed, meaning your interest is guaranteed for the term you choose for your deposit. Even if the Reserve Bank will adjust rates in the interim your account will not be affected.
Let’s look at the other benefits of a term deposit account:
- All term deposit accounts get paid with fixed interest rates. These can be paid to you monthly, quarterly, half yearly or annually if your term is longer than 12-months. If you shop and bank with the right client, then chances are your money accumulates compound interest when the earned interest gets added to your primary investment, helping to acquire more interest in the process.
- Ranging terms allow you freedom in the way you want to handle the money.
- It is a secure investment of excess cash: By investing your money into a term deposit account you are assured it will still there when you are ready to spend it. Instead of having money sitting around in a savings account or a checking account you can make it work for you. This is great for people who don’t need access to large funds while having the knowledge it will grow during the specified term.
- It’s a great way to force-save money for a larger expense, since you can’t draw it unless you pay a break fee.
What are the drawbacks of a term deposit?
There is one major drawback to opening up a term deposit account. You will lose liquidity of your funds. Should you ever need emergency access to those funds while a term is still in operation, you can be made to pay hefty ‘break’ fees. Paying these would defeat the reason for choosing these accounts in the first place, but having said this, there is an emergency option if the need ever arises.
- If you want the highest possible interest rate on your account then you need to part with the money for a long while.
- Automatic roll-overs can lose you money: When you fail to act on maturity of your term deposit it could mean that the same term for the second time around will fetch a much lower rate. Since interest rates fluctuate all the time, chances are they will be different when your term is up for renewal. Therefore it pays to pay attention to your options upon maturity.
- Not every term deposit is equal. Different banks offer different terms and interest rates. It pays to show around and to make things easier for you we have included a handy table at the bottom of this page.
- Small print alert: Before you choose a specific supplier be sure to read their product disclosure statement to fully understand your rights.
- Unless your term deposit account is guaranteed by the APRA (Australian Prudential and Regulatory Authority), your investment is not safe! Visit the APRA website for more information.