As the name suggests, a one-year term deposit is a cash investment account that pays a fixed rate of interest on a principal sum over a 12-month period.
And while the interest rate on a term deposit is fixed, the rate of return on your one-year term deposit will be dependent on a few variables.
These include the size of your principal sum (or cash deposit), the frequency of interest paid and whether you withdraw money during the one-year term.
The rate of interest on one-year term deposits will vary from bank to bank. And some banks may run ‘specials’ on their one-year term deposits.
These are worth keeping an eye out for as term deposit specials usually offer a significantly higher interest rate for the term than usual.
However, you need to be quick to jump on them as they’re offered for a limited time.
The main objective of investing money in a term deposit is to grow your money. And the way to do this successfully is to decide on which one-year term deposit is best for you.
How do I choose a one-year term deposit?
To help you choose a one-year term deposit, the best place to start is to consider how much you’ve got to invest. You don’t need to have a huge amount of money to open a one-year term deposit.
That said, the size of your deposit can sometimes influence the interest rate you’re awarded. So compare term deposits of the same duration to see who’s offering the highest rate.
And every term deposit will require a minimum cash investment, so make sure you meet the criteria before proceeding with your application.
When you see an interest rate advertised for a one-year term deposit, it’s usually the entry (or base) rate. This rate may vary depending on how frequently you want to be paid interest.
For example, a one-year term deposit offering 2.40 per cent with interest paid at maturity (or annually), might pay 2.35 per cent if the interest is paid monthly.
Give some thought to how you want the interest paid, as this could impact the size of your return.
Another key consideration is whether you can afford to lock your money in a one-year term deposit without touching it. Any withdrawals from a term deposit can reduce the interest your paid at maturity.
What is the benefit of a one-year term deposit?
The benefit of a one-year term deposit is that it gives you the opportunity to grow your money, while only being locked away for 12-months.
Term deposits of longer durations might pay more interest over time, but keep your money out of reach for longer too.
The interest rates offered on one-year term deposits are generally higher than for term deposits of a lesser duration. And higher again if you manage to sign up for a special offer term deposit.