Multiply your money
Terms deposits are the most familiar type of investments
paying interest. They are a savings product from a bank, credit
union or building society. Your money is invested for a fixed term
and you get a fixed rate of interest over that term.
Here are some suggestions on how to choose a term deposit and
what to do when it matures.
Pros and cons of a term
The benefits of term deposits are:
- There's virtually no risk of losing your money
- You earn a rate of return that's usually higher than a regular
- The interest rate will not change over the term you select
- When placed in an Authorised Deposit-taking Institution (ADI),
all deposits up to $250,000 are guaranteed by the Government. This
cap applies per person and per ADI. To find out more see government
Only an Authorised Deposit-taking Institution (ADI) can offer
term deposits. Don't confuse them with less secure investments
where the interest rate is fixed for a number of years. The
Australian Prudential Regulation Authority has a list of ADIs.
However, they do have their downsides:
- If you wish to access your money before it matures, a penalty
is likely to apply.
- They may be less flexible and provide a smaller return than
other comparable products. For example, bank online savings
accounts (which are just as safe) can offer returns that are
sometimes higher than those of term deposits.
- Honeymoon rates can drop if the
investment automatically rolls over to a new term at maturity.
Choosing a term
Term deposit rates vary so shop around for the best rate for the
period that suits you. You can find this information online at
providers' websites and on comparison sites.
What to do when the term
Term deposits are not a 'set and forget' investment. You
probably shopped around for a good interest rate when you first
took yours out, and it's just as important to shop around
when it's maturing and you want to invest for another term.
When your investment is maturing, your bank or
credit union will write and tell you how much interest you've
earned and explain what your options are.
If you do nothing, your term deposit may automatically roll
over into a new one. This may have a lower interest rate than the
original or other similar products.
Call your provider straight away if you're not happy with the
interest rate offered. You should be able to switch to a
more competitive interest rate.
If you don't call straight away, you will probably be charged a
fee to get out of the new term deposit. You'll also miss out on a
competitive interest rate in the meantime.
Term deposits are a safe and reliable way to
grow your wealth over time. At maturity decide whether it is still
an appropriate investment for your current circumstances and check
that the returns are competitive with other similar products.
Last updated: 15 Oct 2018