What is a Term Deposit?
A term deposit is an investment where the interest rate is guaranteed not to change for the specified period or 'term' that you choose to invest your money. By locking in a term deposit rate and a set period you can calculate exactly how much your investment is worth. The best way to select a term deposit is to choose the term that fits in with your other investments or savings plans.
Depending on the amount you are able to invest, a term deposit can be smartly used as a regular source of income. The actual interest rate you earn will vary from institution depending on the length of time and the amount of money you wish to invest for.
Why Use Term Deposits?
Some people may be curious as to why term deposits are still offering such attractive rates in an era when online banking is reigning supreme in the savers' market. There are two reasons for this. The first reason is the fact that banks can better match their deposit takings with their investment terms. Another reason can be attributed to banks trying to attract more local funding, instead of an over-reliance on overseas funding of its deposit books.
Whatever the reason is, term deposits will not be disappearing from popularity anytime soon. Apart from the interest-rate difference, there are a couple of reasons why a term deposit may be a more suitable investment option. Firstly, term deposits can help you to stay disciplined and avoid the temptation of withdrawing your money too soon. Secondly, you can also match the term deposit with the timing of when you will need your cash flow. This is especially relevant if you are in the market for a new car or perhaps a family holiday.