A term deposit is an investment of money deposited with a bank or financial institution for a fixed period of time (or term) and at a fixed interest rate.
You cannot withdraw the money until the end of the term – whether it’s a three-month special term deposit, or one that lasts for more than five years.
However, ‘advance notice’ term deposits will allow you to withdraw the money before the end of the term if you pay a penalty fee and give sufficient advance notice.
Term deposits can be useful for people who prefer the security of knowing exactly how much their money is earning over a specific period rather than dealing with the regular fluctuations of the money market.
What are the pros of three-month special term deposits?
- Low-risk – You know exactly what you’ll be earning and how long your money will be tied up.
- Helps manage your spending – Once locked in, you cannot access the money until the end of the term. So you can’t spend it on unnecessary items.
- Helps with saving – The opposite of the above; it can help you save for big-ticket items.
- Set and forget – Once it’s locked in, you don’t have to do anything else until the term ends.
What are the cons of three-month special term deposits?
- No flexibility – Your money cannot be withdrawn during the term without being charged a penalty.
- Locked interest rate – If the market interest rates rise, your term deposit won’t follow suit because the rate is locked in for the length of your term.
What are the features of a three-month special term deposits?
If you can find a good interest rate, locking up your money for a short period like three months can be a good way of getting a decent return on your investment, while still maintaining some liquidity with your money.
It can also be helpful if you come into a healthy chunk of money (such as a tax refund or an inheritance) and want to park it somewhere, earning interest, while you decide on your longer-term plans for it.
As with any fixed-term deposit, the main goal is to find the best interest rate for the term and amount you are investing. You’ll generally find that the more you deposit, the higher the interest you’ll be offered, whether that’s for a three-month special term deposit or one with a longer term.
Remember when you’re comparing interest rates that they are usually listed at the ‘per annum’ or annual rate. That means you’ll need to divide by four to find out how much you’d earn on a three-month special term deposit.
You may also find that your three-month special term deposit offers a ‘rollover’ feature. This means that when the term ends, you can immediately have the amount (plus the interest you’ve already earned) rolled straight into another fixed term.
Please note that if the rollover is automatic, and you forget about the expiry of your three-month special term deposit, your money might get reinvested even if you don’t want it to be.
You also need to be aware that even if you do want your three-month special term deposit to be reinvested, the interest rate may be lower than when you first made the deposit.