If you’re looking to give your savings an extra push without making a complicated investment, a short term deposit might be the answer.
Short term deposits can be an effective way to give your savings a short-term boost without the need to lock your funds away for years on end.
Short term deposits are a low-risk way to make your money work for you and get a stable return on your investment.
What is a short term deposit
Short term deposits are a safe way to grow your savings. If you’re looking to invest and grow your savings for a period of up to 12 months, then a short term deposit may be worth exploring.
A short term deposit is essentially a sum of you money you invest for a short period of time at an agreed interest rate. At the end of the short term deposit period, the bank or lender will return the original amount you invested plus any interest you’ve earned on that money. Depending on the account, when the short term deposit finishes, you may have the option of rolling the funds over for another term.
Short term deposits vary in time, including 30 days (one month), 60 days (two months), 90 days (three months), 120 days (four months), 180 days (six months) and 12 months (one year). From time to time, lenders offer special terms like five-month special term deposits. When comparing short term deposits, you may notice that each term has a different interest rate. The general rule of thumb is that the longer the term, the higher the interest rate.
A short term deposit can be an appealing investment because they’re considered low-risk and provide a stable return. It’s worth noting that most short term deposits charge penalties if you choose to withdraw the funds before the short term deposit matures. To avoid any unnecessary penalties, consider both your short- and long-term needs before you lock away your savings for a fixed period of time.
Short term deposits appeal to some savers for a whole range of reasons, including:
- If you’re unsure whether you’ll need your money at some point in the near future
- You have a short-term savings goal to spend on a holiday or a house deposit
- You’re unsure if interest rates will rise
- You’ve never invested in a term deposit before and want to try it out
- You’ve inherited a large amount of money and want to lock it away until you need it
- You’d like to invest in several short term deposits with many different time terms
Whatever your reasons, find a term that suits your needs and an interest rate that gives you the greatest return. It always pays to do your research, so before you stash away your savings, compare your options.
How to compare short term deposits
If you’ve managed to amass some savings and you’re looking for an easy way to get a guaranteed return, short term deposits may be the answer. When comparing short term deposits, you’ll ideally want to find an offer that gives you the biggest bang for your buck and helps you grow your savings by paying the most interest.
Here’s what to look out for when comparing short term deposits.
The interest rate you earn on your short term deposit is essentially your return on investment. The percentage advertised is the amount of interest you’ll earn over the life of the short term deposit. When comparing short term deposits, look out for the ‘next interest rate’, which is the rate you can earn by depositing your savings for a longer term. If you don’t need access to your funds, investing for a longer period may earn you more interest.
When it comes to comparing interest, it’s not just about the rate. Take notice of whether the interest compounds monthly or at the end of the term. Short term deposits that compound interest monthly will usually earn you more interest over the term of the deposit. Of course, this varies depending on the lender and the amount you invest.
Some short term deposits usually have a minimum and maximum deposit amount. In most cases, the minimum deposit is $1,000 and the maximum differs between accounts. The interest rate may differ depending on the amount you invest, so compare your options to ensure you get the best rate of return.
If you open a short term deposit with another bank, check that you don’t need to open any additional accounts and that you can easily deposit and withdraw funds between banks.
When you invest in short term deposits, you’re agreeing to lock away your savings for a fixed period. If you need to access your funds before the maturity date, you’ll most likely be penalised. While it’s not ideal to prematurely withdraw your funds from short-term deposits, take notice of the charges so you know where you stand.
Savers looking for a more flexible way to stash away their cash might also want to consider high-interest savings accounts or savings accounts that offer bonus interest.