Naturally, with any term deposit account or other financial product, you want the best return on your investment, especially with a sum as significant as $250,000 or more.
So what should you look for in order to find it?
- Terms – Term deposits will give you the maximum interest rate for balances of over $250,000, but you cannot access your money for the term of the deposit.
- Interest rate – A high-interest savings account might pay higher interest rates than a term deposit, even for interest rates over $250,000.
- Fees – Check whether any particular fees will be charged on your term deposit.
- Penalties – Are there any penalties for withdrawing your money before the term expires?
With term deposits, you get the security of knowing exactly how long your $250,000 or more will be tied up and how much interest you will get.
However, you should think carefully about the term you want to leave your money tied up for.
For example, if you go for a short term and interest rates drop, then when the time comes to rollover the original $250,000 deposit (plus interest), you may find yourself short-changed.
If you go for a long term long and decide to withdraw the money before the end of the term, in order to get a better rate somewhere else, the penalty for the early withdrawal could end up negating the benefits of the better interest rate.
The Australian government’s guarantee, known as the Financial Claims Scheme, protects term deposits of up to $250,000, whether savings or term deposits. So if you have more than this amount, you may be better to split it into separate accounts since the excess, in a single account, will not be guaranteed, but over several accounts (each below $250,000) each deposit will be guaranteed.
Some words on term deposit interest
Another thing to consider is how often interest on your $250,000 term deposit will be paid. Usually you can choose between monthly payments and a single lump payment when your term deposit matures.
Some banks or financial institutions will offer you a few different options for how often interest will be paid, while others will only offer one.
The most common options are monthly, every six months, annually or when the term ends. Consequently, not all payment options will be available for all terms, particularly with short term deposits.
If you decide to have your interest paid monthly, you’ll usually have a couple of options. You could either have it paid into your savings or transaction account, or to have it added to your term deposit balance.
Having it paid monthly into another account means you get some benefit during the course of the term, and a little extra to spend. On the other hand, if you have it added to the balance of your term deposit, the interest will compound, increasing your final return.