Term deposits offer several benefits that may be attractive to savers and investors, particularly those seeking a fixed payout over a set period.Here are some potential benefits of term deposits:
Low risk
One of the standout perks of term deposits is the relatively low risk they offer compared to some other investment options. When you lock your money into a term deposit, you agree on an interest rate upfront. This means you'll have a clear picture of your expected earnings. Even if fluctuating interest rates take a dip, you'll still pocket your agreed-upon fixed rate. In essence, term deposits provide a reassuring safety net, minimising the chances of any investment loss.
Control your spending
Once your funds are safely nestled in a term deposit account, accessing them becomes a bit of a challenge, often incurring fees. Your money essentially takes a vacation from your regular spending, tucked away for a predetermined period. This added layer of separation makes it more difficult for you to impulsively splurge on everyday expenses. Term deposits promote a disciplined approach to managing your finances, helping you stay focused on your savings goals without succumbing to the temptation of frivolous spending. It's like putting your money on lockdown to watch it grow steadily.
Low maintenance
Term deposits don’t take a lot of work to maintain. Thanks to your fixed rate, your investment should earn interest and make money with barely any effort at all. This means they often appeal to people who tend to be more hands-off with their personal finances.
Furthermore, setting up a term deposit is generally fee-free. Unless you decide to withdraw your money early, an action that’s likely to attract a penalty fee, you usually don’t need to pay anything to open or maintain a deposit account.
Secure
Unlike some other investment options, term deposits benefit from protection through the Australian Government’s Financial Claims Scheme or the government guarantee. This safeguard ensures that your term deposits with Authorised Deposit-taking Institutions (ADIs) are supported up to the value of $250,000 per account holder per ADI, providing a safety net in the rare event that the provider were to go under.
In comparison, other investment options, such as shares and ETFs are not backed by the government guarantee. Despite potentially lower returns on a term deposit, the assurance of protection for your savings up to $250,000 adds a layer of security.
Predictable returns
Term deposits offer investors predictability in terms of returns. When you open a term deposit, you agree on an interest rate upfront and know exactly how much you’ll receive in your account at the end of the term. This predictability may be advantageous for investors looking for guaranteed returns on their savings.