September 24, 2010
It has been revealed that many financial advisors need more guidance and education about term deposits, following a survey by investment management firm PIMPCO which found that almost half of the 200 advisors surveyed classify the investment product incorrectly.
Peter Dorrian, head of global wealth management at PIMCO, says the survey found 47 percent of the financial advisors' clients perceived term deposits as cash. "As billions of dollars sit in term deposit accounts," he says, "the perception that they are cash indicates advisers are failing to understand the significant limitations of the term deposit structure."
This is especially concerning considering on average advisors will allocate nearly one-third of their client's fixed investment to term deposits.
What you need to know about term deposits
Rather than risk the chance of being told incorrect information or not being told the whole story, RateCity has highlighted points on all you need to know about this investment option.
- Term deposits are a fixed term investment where your money is locked away for a certain period of time. During this time it accrues interest at the agreed interest rate.
- You can choose to invest your money for a short-term - between one month to one year - or for a longer-term usually from one year up to approximately seven years. However whatever time you do choose to tie your money up for, it cannot be accessed free.
- In comparison to other types of investments such shares, term deposits are considered a lower-risk and secure form of investment.
What to be aware of
While your money is tucked away you are unable to touch it, unless you are willing to pay a fee. The amount you will be charged will depend on the financial institution but typically they deduct a percentage off your fixed interest rate. For instance if your rate was 6.40 percent they may take 3 percent off this, so you will only make 3.40 percent in interest.
You also need to be aware that as your term deposit reaches maturity you will need to notify your financial institution of what to do. If you don't your term deposit will automatically roll over and renew itself for the original investment term. When this happens the interest rate will be set at whatever the going rate is from that institution for the particular term. So potentially it could be much lower than what you originally received.
If you want to find out if a term deposit could be the right investment option for you, compare term deposits online to see what interest rates are currently available and see how you can grow your wealth. Make sure you read the product disclosure statement (PDS) before applying so you are aware of all the fees and charges.