A term deposit is a lump sum of money invested at a financial institution for a set period of time. In depositing the money, customers agree on the amount they are depositing as well as how long they are depositing it for.
Terms generally range from one month up to 10 years, but this can vary from lender to lender. Both the amount deposited and the length of the term deposit often determines the interest rate awarded by the lender. Generally, longer term deposits offer a better interest rate than shorter term deposits; however, this is not always the case. Lump sum amounts generally range from $5,000 to $100,000 depending on the lender.
Some term deposits offer early withdrawal; this will give customers access to money before the maturity of the deposit if they need it. This feature often comes with penalties in the form of penalty fees or a reduced interest rate.
Who offers term deposits?
Term deposits are offered at a range of Australian lenders, from small online lenders to the big four banks. Rates, fees, features and the length of deposits can differ between lenders.
Larger banks may offer greater features with their deposits and have a wider range of deposit times, however smaller online lenders and credit unions may offer more competitive rates.
It is important to consider the whole range of lenders to find the best product.
How to find the best term deposit for you
The ‘best’ term deposit is the deposit that best services your specific needs and expectations for the investment. It is important to look at the length of the deposit, the interest rate and the features it offers. For someone wanting a short-term investment, a five-year term deposit may not be an ideal option, as it will keep their funds locked away for longer. For a customer wanting the highest rate on the market, a longer deposit will generally offer a much better return than a short deposit.
It is important for customers to have an understanding of their needs and expectations for the investment when comparing products. The features offered by each term deposit are also worth careful consideration, as some deposits will offer more than others.
A range of lenders an offer early withdrawal, maturity alerts and automatic maturity rollover, which can make a big difference to the performance of the deposit.
Where can you find term deposit information?
As with most financial products, there is no one-size-fits-all product. It is important for consumers to make sure a term deposit suits their needs before applying.
RateCity provides product information on many of Australia’s lenders. Term deposit information and comparison tools can be found on the term deposits page. For a full overview of a term deposit, including amount, interest rates and fees, click through to the product page on the website.
Advantages of term deposits
Term deposits gives consumers the ability to lock in an interest rate, even if interest rates are falling in the wider market. This is an advantage over traditional savings accounts, where rates can fluctuate with little warning.
Term deposits are good for enforced saving, as they lock the funds away for the length of the term. Interest rates are typically higher than regular savings and transaction bank accounts; this is the trade-off for keeping the money in the account for a set period of time.
Term deposits are generally a safe investment; the risk and uncertainty are reduced because both the lender and the customer agree on the rate and length of the deposit upon application.
Term deposits also fall under the Australian government’s Financial Claims Scheme, which guarantees deposits of up to $250,000 at all authorised deposit-taking institutions (ADIs). This government guarantee keeps funds safe regardless of what happens to the ADI.
What to look out for in a term deposit
Before applying for a term deposit, customers need to make sure that they are only depositing what they can live without for the length of the term. Early access is allowed on selected deposits, but this will normally result in a reduction in interest rate or in some cases a forfeit of any interest.
It is also important to check the other rates available in the market. While term deposits do offer a certain level of security, a high-interest savings account may provide a better deal. But this is not always the case and sometimes the slightly reduced rate of a term deposit is a worthwhile trade-off for the security it offers.
Term deposits can also come with monthly fees as well as early withdrawal fees. This is another area to check before applying, as account-keeping fees can reduce the benefits of a higher interest rate. These fees can normally be found in the fee disclosure documents on the lenders website; alternatively, RateCity has product pages which include a fee summary.