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The best term deposits for July 2020
In the last few months interest rates for savers have been slashed left and right. So, is it time to lock away your savings with a term deposit at a rate that won’t fall any further?
Australia's best term deposits for May 2020
Getting the most out of your savings can be a challenge when term deposit interest rates are currently sitting at historic lows. However, in this growing period of uncertainty, one thing term deposits may offer your savings is (almost) guaranteed returns.
Investing in a term deposit is a safe and simple way of making your money earn money. It’s a less risky option than trading on the stock market, and more accessible (for most) than real estate.
There’s no shortage of term deposits to choose from either. Which is why the best place to start looking for one is on an online comparison site like RateCity.
One of the first things to consider when shopping around for a term deposit is how much you have to invest. Some term deposits have minimum (and maximum) deposit requirements.
The next item on your checklist could be the term (or duration) you want for your deposit. To get the maximum benefit from a term deposit, you need to lock your money away and not touch it. Any withdrawals from a term deposit during the term may result in a penalty such as a reduction in the interest paid. This defeats the purpose of having a term deposit.
Another factor that will determine the interest rate you lock in is the frequency you want to be paid interest. At first glance, a term deposit might advertise a rate of 2.50 per cent for example. However, this might be the rate for interest paid at maturity. If you opt to have your interest paid quarterly, the actual fixed interest rate for that particular term deposit might be 2.30 per cent.
Once you’ve settled on the size of your deposit and the length of time you’re prepared to invest it, you can compare fixed interest rates on offer.
It’s a good idea to use an online term deposit calculator to forecast your approximate cash return. Seeing how much you could potentially earn might inspire you to invest extra money.
The calculator will also give you a ball-park figure to work with when comparing term deposits online. You could then apply this figure to your chosen term deposit.
Another benefit of online comparison – via a comparison site – is that bank deals will often be included in the line-up. These are special offers run for a limited time only.
What’s the alternative to an online comparison site?
How much spare time do you have? Multiply the number of banks, building societies and credit unions in Australia by the number of term deposit products each of them has to offer.
That’s a lot of information to analyse yourself, whereas an online comparison site does that for you. Comparing term deposits online via a comparison tool saves time and helps you make better choices.
How long should my term deposit be?
The duration of your term deposit will depend on how long you can afford to keep your money off-limits. A general rule for term deposits is: the longer the investment, the higher the rate of return.
A term deposit can be anywhere from one month up to five years or more in duration. The fixed rate of interest offered on the different terms can vary considerably.
Use the online term deposit calculator to work out the payoff for your chosen investment term.
How do I sign up for a term deposit?
A convenient feature of an online comparison site like RateCity is that it provides a direct link to each of the term deposits listed. Once you’ve compared online and made your choice, it’s very easy to sign-up.
You can apply for most term deposits online, or within the branch. To do this you would need the following information to complete the process:
- The required minimum deposit
- An Australian residential address
- Identification (passport, birth certificate, driver’s licence, etc)
- Your tax file number (TFN) or TFN exemption
How do I manage my term deposit?
A term deposit doesn’t need managing; your bank, credit union or building society will do this for you. However, there are a couple of housekeeping items to keep in mind:
- Early withdrawals: If you want to withdraw funds within the term, you might need to provide advance notice. Interest rate adjustments and/or administration fees may apply where funds are withdrawn prior to maturity.
- Automatic rollover at maturity: Most financial institutions will automatically renew your term deposit for the same fixed term as before at whatever interest rate happens to apply on the day of renewal.
It’s wise to pay close attention to the maturity date of your term deposit. Some providers send text or email alerts ahead of this time so that you’re prepared.
You can always update your preferred method for notifications via online access to your term deposit, over the phone or in a branch.
Once your term deposit matures, you have a few options including:
- Withdraw your money and close the term deposit
- Invest the term deposit for a new term with or without additional funds
- Shop around and open a new term deposit with another financial institution
Property Personal Finance Writer
A property and personal finance writer, Nick Bendel covers property, loans, credit cards, superannuation, and other bank products. Nick has previously written for The Adviser, Mortgage Business, Lifehacker, Business Insider, Yahoo Finance, and InvestorDaily, and loves getting elbow-deep in the latest ABS, APRA and RBA data.
Today's top term deposits products
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A secured term deposit loan is a personal loan that’s secured by a term deposit. To take out a personal loan that’s secured by a term deposit you would need to go through the same bank.
Generally, secured term deposit loans offer a lower rate of interest than standard personal loans. This is because the interest generated by your term deposit offsets the interest applied to the loan.
A secured term deposit or term deposit secured loan enables you to leave your money invested in a term deposit while still being able to make significant cash purchases.
This type of personal loan usually offers many of the same features of a standard loan, including: redraw facility, variable and fixed interest rate options, and the ability to make extra repayments.
The term deposit rate is the agreed interest rate for your term deposit. It remains fixed for the term of the deposit.
For example, if you deposit $5,000 for 12 months at a 2.5 per cent term deposit rate, that 2.5 per cent term deposit rate will be fixed for the entire 12 months and won’t change until the term matures.
The term deposit rate is one of the most important factors to consider when comparing your term deposit options. The general rule of thumb is that the longer the term, the higher the term deposit rate.
Term deposits are a popular type of investment because they’re safe and provide reliable returns.
The return you get on your term deposit will be determined by the amount you initially invest, the amount of time you choose to invest it for, and the term deposit rate.
Term deposits can be compounded, depending on what you choose to do with the interest.
There are two ways to receive interest from a term deposit: either a lump sum at maturity; or paid on a regular basis, usually monthly. If you get your interest paid regularly, you can get it paid into a transaction account, or back into the term deposit account. By using this second option, you’re getting interest paid on your interest. In other words, it’s compounding.
Having the money paid into a transaction account means you can access it for your day-to-day spending, while compounding the interest means you get a better overall return on your investment. Both have advantages, depending on your needs, but be aware that some term deposit accounts that pay interest regularly may offer a lower interest rate to offset the effect of compounding.
Sometimes you only want to tie up your money for a short period, maybe because you want to make a quick return on a large sum, or just to have more flexibility and access to your money. That’s where a short term deposit can come in.
Short term deposits are usually less than 12 months (e.g. 30 days, 90 days, six months or 12 months), though you will still not be able to access your money for the length of the term without incurring a penalty fee.
At the end of the term, you can roll your deposit over, or you can withdraw it. An advantage of short term deposits is that you can take advantage of higher interest rates with a different financial institution, if they are available.
If you’re looking for a steady way to grow your funds as an international student, you might be considering the possibility of a term deposit. Banking for overseas students can be complicated, so you might be wondering, “Can an international student have a term deposit?”
So, can an international student open a term deposit? The answer is yes.
Several banks around Australia offer term deposits to international students. Some banks even have specific accounts and offers designed for those who study overseas.
In general, large banks will offer several options for international students. If you have already opened an account with a bank, it might be best to start by discussing your options with your chosen bank.
If you’re ready to add a term deposit to your financial strategy, there’s likely one question on your mind: what is the best term deposit rate in Australia?
Unfortunately, there’s no one right answer to this question.
That’s because if you want to find the best term deposit rate in Australia, you first need to understand the nature of interest rates themselves. The financial market is always moving, with interest rates moving up and down and special offers being introduced and withdrawn.
As a result, whatever the best term deposit rate in Australia is today might not be tomorrow.
So to find the best term deposit rate in Australia, it’s best to ignore the past and to instead focus on today’s market. Compare term deposits to find out the current rates and find the right term deposit for you.
A fixed term deposit is a safe and stable way to earn a fixed return on your cash investment.
Fixed term deposits are essentially bank accounts where you lock your money away for a fixed period and earn a fixed interest rate on those funds.
Fixed term deposits can be both short term, which is usually anything under 12 months, or long term, which can be up to 10 years.
Once the fixed term has ended, the bank or financial institution will give you back your initial deposit plus any interest you earn during the fixed term period.
Depending on the type of fixed term deposit account you open, when the term matures, you may have the option of rolling the funds over for a new term or withdrawing the funds.
Unlike other savings or transaction accounts which offer variable interest rates and flexible features, fixed term deposits offer fixed interest rates, which means the amount of interest you earn will remain the same during the term of the deposit.
You may have heard that a term deposit is a type of investment, different to a traditional savings account. All investment comes with inherent risk, so it’s important to know how safe a term deposit is before committing.
Term deposits offer a fixed interest rate which is guaranteed, so you do not have to worry about rising or falling interest rates when investing. You can add up how much interest you will earn over your fixed term, and this will be paid into your account per the conditions of your term deposit.
Term deposits with authorised deposit-taking institutions are also guaranteed for up to $250,000 by the Financial Claims Scheme, so you don’t have to worry about the bank collapsing either.
The only inherent risk of a term deposit is if you may need to break it early. If this happens, you will need to pay a breakage fee and possibly sacrifice some of your interest as a penalty. But if you know you can invest a certain amount of money for a fixed period of time, you can rest assured that a term deposit is a safe investment option.
If you are a student who has managed to save some money and are looking for a safe investment option, you may be considering a term deposit. Most term deposits (and other bank accounts) are open to anyone who is at least 18 years old.
There are also some term deposits open to younger students, some even without an age limit. These term deposits are usually opened on the student’s behalf, by their parent or guardian.
A term deposit is generally a safe investment option, especially if you want to make sure you can’t touch your savings for a set period of time. If you are 18 or older, shop around for a competitive interest rate before committing. If you are under 18, speak to your parent or guardian to get started.
Just like your regular income, the interest you earn on term deposits is taxable. You might be wondering, “How do I pay tax on term deposits?” The tax you pay on your interest will depend on the length of your term and when your interest is paid.
You should pay tax on any interest that you have received within the current financial year. For example, if you receive monthly interest payments, these payments should be claimed on your tax return. However, if your term deposit is longer than one year and you will only receive interest at maturity, then you will pay tax on your interest in the year that you receive it.
Paying tax on your interest is much like paying tax on your income. The money you have made in interest should be claimed on your tax return along with any other income in that year.