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The benefits of short-term deposits


Kate Wick

By Kate Wick

3 min read

Each year Australians look for ways to accrue, save and invest their money, with many turning to term deposits for their investments.

If you are considering investing your savings but don’t want to tie up all your funds for a long period of time, consider a short-term deposit.

Short-term deposits

Short-term deposits are an attractive option for investors wishing to deposit and grow their money for up to 12 months. Term deposits are also considered a relatively safe and practical option compared to other investments such as, property and shares.

Term deposits can be set up for a certain period of time so they serve well for investors that have specific savings goals in mind. If you are saving for a home loan deposit, to fly to Europe, buy a car or for your wedding, a short-term deposit will lock away your money for a short period of time, decided by you, so you can access your money again when you need it.

Common short-term deposits are 30 days (1 month), 60 days (2 months), 90 days (3 months), 120 days (4 months), 180 days (6 months) and 12 months (1 year). Typically the longer the term the higher the interest rate, but this may differ between financial institutions.

Your savings options

Even if you don’t have a specific savings goal, putting away any spare cash, tax return or windfall, into a term deposit account could be a smart money saving move. But how do other savings options stack up?

High-interest savings accounts

A noticeable difference between a high-interest savings account and a term deposit is your ability to access you money and make extra deposits.

Unlike high-interest savings accounts, a term deposit locks away your money so it will stop any temptation to withdraw your funds. Also, a high-interest savings account usually requires you to make regular monthly deposits to keep earning interest.

Many online savings accounts, which offer competitively high interest rates, have strict conditions to earn those rates and many are no good to a lump sum investment. For example, you may have to deposit a minimum amount of money every month and make no withdrawals or you won't earn any interest in that particular month.

Whereas, with a term deposit you deposit a fixed lump sum at an agreed interest rate for an agreed period of time. Don’t forget the interest rate is always negotiable so don’t be afraid to ask.

Transaction accounts

The other savings option, the humble transaction account, offers little competition. Transaction accounts earn little interest so because term deposits and high-interest savings accounts offer higher interest rates you can grow your money faster.

In order to reach your financial goals, it is important to have a savings plan in place so you can see what you can earn and how much you will have saved once your term deposit reaches maturity or after a period in your high-interest savings account.

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