Shopping around for the best term deposit is easier than you think. Rather than spending hours reading through various websites for term deposits, RateCity has done the hard work for you.
This leaves you in the driver’s seat to decide what type of term deposit you want to invest in. So, before you jump into the term deposit abyss, there are three things to consider:
- The size of your deposit
- The duration of the term
- The frequency you want your interest paid
Once you have an answer for each of these items, you can compare term deposits until you find the best term deposit.
An attractive feature of a term deposit is that it offers a guaranteed return via a fixed interest rate over a fixed term.
The aim would then be to secure the term deposit offering the best (i.e. highest) fixed rate for the term you want.
In addition to a range of standard term deposits, many banks, building societies and credit unions run ad-hoc specials.
These are term deposits offered for a limited time (during which you need to sign up), require a minimum/maximum deposit, and offer a higher fixed interest rate for a specified term.
In your quest to find the best term deposit, it makes sense to check-out the current bank deals. However, a competitive fixed interest rate is not the only factor that defines a good term deposit.
Something else to consider when deciding on the best term deposit is whether there are any fringe benefits. Not all term deposits let you…
- Make additional deposits during the term
- Withdraw money without any penalty
Can I deposit and withdraw money during the term?
One factor that can reduce the fixed rate of your term deposit is whether you make any withdrawals during the term. Because a term deposit is an investment, try to avoid withdrawals if you can. Otherwise, even the best term deposit will produce sub-optimal performance.
If you do need to take money out of your term deposit, you may be required to give a minimum of 31 days’ notice (except in cases of hardship).
Doing so usually triggers an interest rate adjustment (downwards), and you might also end up being charged an administrative fee.
And in some cases, you may not withdraw any funds during a term unless you close your account. Investigate whether this clause applies to your term deposit prior to withdrawing money.
There are term deposits out there that allow you to make withdrawals without being penalised. If you think you might need to dip into the term deposit at some stage, look out for this option.
With regard to deposits, it’s not common practice to make additional deposits once you’ve opened an account. Usually, you open a term deposit with your initial cash contribution and that’s that.
Some banks now give you the option of making additional deposits within a specified timeframe (for example, within a week of opening your term deposit), while others let you make deposits at any time.
If you do find a term deposit that allows extra deposits, you might want to find out whether there’s a limit on the number of deposits you can make.
How is interest calculated on my term deposit?
For most term deposits, interest is calculated daily on the balance of your account at the end of each day, including the day of deposit but excluding the day of withdrawal.
Interest is calculated on your term deposit for a day by dividing the interest rate on the account by 365 (even in a leap year) and multiplying that sum by the account balance on that day.
Interest is calculated daily and can be paid in interim payments. If the term deposit you select is longer than 12 months, interest will be paid at least annually.
Can I choose when interest is paid?
For many term deposits, you can choose when interest is paid. Some term deposits, such as special offers, only pay interest at maturity.
Depending on the term, you could opt to have interest paid monthly, quarterly, half-yearly, annually and of course at maturity.
The fixed interest rate you’re paid is linked to the frequency of interest payments. In other words, the more frequently you want to be paid interest the lower the rate you generally receive.
If you’re not reliant on interest payments as a source of income, it’s probably worth holding off to receive interest as a cash bonus at the end of your term. After all, he best term deposit is a profitable one.