Term deposits are a fixed interest investment suitable for those who want to receive a safe, stable and generally, attractive return on their money.
How they work
With term deposits, you lend your money, in a lump sum, to a financial institution, be it a bank, a building society or a credit union, for a specified period or ‘term’, at a fixed rate of interest, and at the end of that term your money is returned to you – with interest. Ordinarily, the rate of interest you receive on a term deposit is higher than you would get from a standard savings account.
A key thing to determine is how term deposit rates compare. Fortunately, with the internet, this is easy to do. On the RateCity website for example, you can compare term deposits from numerous financial institutions, enabling you to find some of the best term deposit interest rates available. To see how term deposit rates compare, visit our term deposit comparison page or for more information check out our term deposit guide.
Shopping around can pay
The duration of term deposits can vary significantly, from as little as a one month term up to a term of five years (or more). As you can see too, by checking RateCity’s table of how term deposit rates compare, interest rates can also vary significantly, so it really does pay to compare term deposits before investing in one.
Not the same as a savings account
Be aware with term deposits, whether you're fixing your money for a short or long term, the money you put into them is essentially unavailable to you for that period – which is why interest rates are generally higher on term deposits than readily accessible savings accounts; to recompense you for having your money locked away. That said, if you do need the money back before the term expires, you may be able to access it. However, by breaking the term deposit you may be penalised and not receive the same rate of interest you would otherwise earn if you had kept your money in the term deposit for the full agreed period.
Also note that different term deposits make interest payments to you at different intervals, some paying monthly, quarterly, half yearly, annually or at maturity (when the term is up), for instance.