A term deposit account is a type of fixed investment in which your funds are locked away for an agreed period of time at a fixed interest rate.
A fixed investment can be a great savings strategy because term deposit accounts typically offer higher rates of interest than other savings or transaction accounts do.
One common belief about fixed investments is that the longer you fix your money in a term deposit account, the better the interest rate. That's often true of the big four banks. But if you take the time to compare term deposit accounts online at RateCity, including accounts from smaller institutions, then you're likely to find great rates for short terms as well as longer ones.
For instance, the top rate for a three-month term deposit among the big four banks may be 5.0 percent. But a smaller institution may advertise its three month terms for 5.9 percent on RateCity, so it's worth shopping around for a great deal.
The pros and cons
The main advantages of a fixed investment such as a term deposit include:
- Guaranteed interest rate for the agreed period
- Security – so if the market crashes your funds are safe, unlike the share market
- Often higher rates of interest than other savings accounts, and competitive yield
There are some disadvantages of a fixed investment too:
- Can't readily access your money, unless you're prepared to pay big fees
- If interest rates increase, you won't benefit from a rate rise as your rate is fixed
- Not a liquid asset – less flexible than some other investment options
Even after you've weighed up the pros and cons of a fixed investment such as a term deposit, choosing the right one to suit your situation can seem difficult, given the huge volume of accounts available. So how do you know which option is the best one for you?
Many investors will consider the interest rate to be top priority when selecting a term deposit account and this is a great place to start your comparison. So always look for high-interest term deposits. However, the term you lock your money away for can be equally important. So have a good think about when you???ll need the money again – because if you need to access the cash prior to maturity then you may incur fees. It's a good idea to read over all of the terms and conditions of any future investment so you know where you stand legally and financially.
The table below lists some of today's highest rates for 1 Year term deposits availiable at RateCity.