Term Deposits

What is a term deposit?

It’s another type of savings account that banks offer – you agree to put away a certain sum of money for fixed period of time. After the fixed period of time that money is locked away- the bank will pay you a set interest return. 

Kind of like a deal with the bank – you promise not to touch the money – then the bank gives you a better fixed interest return compared to a regular savings account. 

What are the pros of term deposits?

• Guaranteed return – if you don’t touch that money for the agreed time – you will definitely get the advertised rate of return – you lock in this interest rate so if interest rates fall – you will be protected 
• It’s safe – this money is guaranteed by the government 
• Better returns than a normal savings account 
• Set and forget – no need to worry about this investment – it will do its own thing and increase without monitoring 

What are the disadvantages? 

• Can’t touch it – the money is locked away, there are significant penalties if it’s withdrawn early 
• Interest rates go up – if you’ve locked in a lower interest rate and interest rates go up, you won’t be able to benefit 
• Returns may not be as high – compared to stocks, real estate, and managed funds – the returns may not always be much better than inflation

Conclusion 

Term deposits are a safe (very low – no risk) and secure way to store your money, it may give better returns than a saving account but it means your money is locked away for a period of time. It may also not perform as consistently well as other investment options such as stocks, shares, funds but may be an answer for very risk adverse individuals.