Some superannuation funds offer term deposits for people who want to minimise their investment in the share market.
What are superannuation term deposits?
Superannuation term deposits are a specific type of term deposit that is offered by some superannuation funds. Rather than invest in the share market, some people prefer to deposit their super into a term deposit because the interest rate is locked in, which can be appealing in comparison to the volatility of the market.
Super term deposits can also be set up by people with self-managed superannuation funds (SMSFs). Self-managed super funds are available for people who opt to manage their superannuation themselves as opposed to having a superannuation company do it.
Some people choose to manage their own super fund because it gives them access to a broader range of investment options. It also means not having to pay fund fees or commissions to financial advisers.
Pros and cons of superannuation term deposits
There are a number of potential advantages and disadvantages to investing your super in a term deposit.
- Low-risk investment – Term deposits are a fixed investment, which means your money isn’t exposed to the volatility of the market.
- Interest rate is fixed – Once the interest rate is locked in, it stays the same for the life of the term deposit.
- Relatively easy to manage – Term deposits are easy to manage compared with other investment options because you only need to deposit the money and let it mature.
- Low tax rate – Unlike regular bank term deposits, the returns on super term deposits are taxed at a lower rate.
- Money is locked away – Once you’ve deposited your money, you won’t be able to access it for a certain period of time, even if other super investment opportunities arise.
- Low flexibility – Depositing a lump sum means less money to invest elsewhere.
- You are responsible for your super – If you’re investing in a term deposit with a self-managed super fund, you are responsible for managing your investments, which means you need to thoroughly understand your financial and legal obligations.
How to set up a superannuation term deposit
If you’ve decided you want to put your super into a term deposit, you’ll need to decide whether you want to do so through a professionally managed super fund or as a self-managed super fund.
Keep in mind that with an SMSF, you become fully responsible for managing your money and are personally liable for all the decisions made by the fund – even if you get help from a financial adviser.
If you choose to stick with a managed super fund, many offer DIY investment options where you can choose specific assets like term deposits, as well as shares and exchange traded funds. Compare super funds to find one that best suits your financial goals.