A year can be a long time in finance, but if you’ve done your homework right, investing in a 12-month special term deposit can be a beneficial part of your financial strategy.
A term or fixed deposit at a financial institution can be a good way to maximise your wealth growth in a safe and effective manner.
The bonus of a term deposit is that the interest rate is guaranteed and set in concrete. Basically, if you look around and find a good deal, you can lock it in for a year. The attraction of an interest rate on a 12-month special term deposit is that it is usually higher than with a three- or six-month term deposit.
If you have long-term saving goals or if you are saving for a home loan deposit or an overseas holiday, a 12-month special term deposit can be an effective way to achieve those financial goals. Some financial institutions will offer you an even better interest rate if you are willing to invest a larger sum.
So for the conservative person with ample cash, a 12-month special term deposit can be a perfect fit.
For the financially challenged, the prospect of locking your money in for a year may be a tad scary. But be warned that breaking a 12-month special term deposit can incur penalties. So it is imperative to be budget savvy so you can survive the year without tampering with your 12-month investment.
Unlike a transaction account, savings account or a home loan where you get the choice between a variable or fixed interest rate, a term deposit is locked in and guaranteed not to alter. A 12-month term in banking circles is regarded as a short term deposit; anything longer falls in the long term deposit category.
What you need to know about fixed deposits
As a general rule, if you have a minimum of $1,000 cash, you can invest in a 12-month special term deposit for free.
There is no limit on the number of term deposits you can have, because banks want your money.
Generally, thanks to the internet, you can open a term deposit with a few clicks, but some banks may insist on a personal approach.
Interest on a 12-month special term deposit is usually paid monthly, quarterly, six-monthly, annually or on maturity. The interest is paid directly to an account of your choice, and it can also be transferred to another account.
However, there is a price to pay if you want to dip into your 12-month special term deposit before maturity. So it usually makes sense to budget in such a way as to avoid an early withdrawal penalty.
Some people ask if their money is safe in a term deposit. Well, the Australian government guarantees deposits of up to $250,000 in authorised deposit-taking institutions (ADIs). So your hard-earned cash will still be secure in case your lender collapses.
When the 12-month special term deposit matures, you can withdraw the cash, exercise the rollover (or automatic reinvestment) option or place the money in a different term deposit (perhaps with a different lender).
A 12-month special term deposit takes the guess work and risk out of investing. Depending on your financial circumstances, it might be the right product for you.