Got some spare cash lying around? If it's not enough to get your foot in the housing market and you're nervous about the volatility that shares can sometimes bring, it might be worth considering a term deposit.
Term deposits are a safe and easy way to invest money and capitalise on higher than average interest rates. The downfall is that once your money is deposited, it's locked in until the end of the term or until it reaches maturity so you typically can't access it in emergencies. But keeping your money out of arms reach of your pocket, isn't such a bad thing, particularly if you are trying to save for something big.
To get the most from your term deposit and help you save more, RateCity has put together five tips to selecting a term deposit account.
1. Choose a high interest rate
With the cash rate at record lows, now isn't the best time for term deposit rates. That being said, with rates ranging from 2 per cent to up to 3.4 per cent, some deals are much better than others so compare rates online and pick one that's going to give you a decent amount of interest at maturity.
2. Use a term deposit to save for a goal
Let's say you are going overseas for a holiday in a year's time and you've been saving frantically. Rather than just letting your money sit in a transaction account earning basically no interest, why not open a term deposit? With $10,000 saved up, a one year term deposit will earn a couple of hundred dollars extra to spend on your holiday.
3. The longer the better
The longer the term, usually the higher the interest rate you will receive and the more money you will make. For example, based on one of the highest rates for a one year deposit you will receive 2.9 percent with Firstmac, compared to a five year term which will give you 3.4 per cent interest with Greater Building Society.
4. Short-term fix
Term deposits are also available for short-term investors looking for a quick buck and are available for as little as 30 days from many financial institutions. These are a great option if you need to make a little bit of extra cash quickly. Six-month term deposits are fetching as high as 2.9 per cent by UBank and ANZ is also up there at 2.7 per cent. They are also a safe bet if you think that rates will rise in the near future, so you can deposit your savings and make a good return in the process, and then move your money into a higher interest account once the rate rises.
5. Earn more when you roll over
If you currently have you money locked into a term deposit, once your money reaches maturity don't let it automatically roll over to your bank's best rate before finding the best interest rate at the time and deposit your savings into another term deposit account. Rollover rates can be much lower than the best deals on the market so make sure you keep track of when your term ends.