If you want a greater degree of investment certainty, then putting your savings into high interest term deposits may be an option worth considering.
Moreover the term deposit rates best suited to you will typically generate the best returns based on your risk and return profile. However, before you deposit your hard-earned money, you should weigh up the pros and cons of having a fixed term deposit account.
There are a couple of reasons why term deposits may be a suitable investment option. Firstly, the Australian Federal Government has guaranteed all term deposits up to $250,000 (at the time of writing). This means your savings are secure regardless of what happens to your financial institution.
Secondly, when compared to a high-interest online savings account, term deposit rates best suited to your circumstances, such as a 90 day term deposit or 1 Year term deposits, offer you the added protection of locking in the interest rate for a fixed period. This safeguards your investment against the threat of future interest rate falls.
Thirdly, term deposits remove the temptation of you spending your savings without penalties. Many financial institutions attach a penalty fee for accessing your money before the fixed period reaches maturity. By leaving the investment alone, it will help you save for important acquisitions such as a first home or a new car.
One of the most common mistakes with longer-term deposits is to assume your money will be rolled over to a similar interest rate when term deposits mature. This isn’t always the case, and you could find your money actually earns a lower return. Your financial institution should give you advance notice when the term is set to mature. At this time, it’s worth shopping around for term deposit rates best suited to your circumstances.
Also be aware that term deposits are fully taxable, and won’t generate any capital gains for that matter, unlike ‘growth assets’ such as property and shares. Put simply, your earnings are taxed fully at your marginal income rate (the highest rate of tax you’ll pay), just like your wage.