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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.
If you’re looking to give your savings an extra push without making a complicated investment, a short term deposit might be the answer.
Short term deposits can be an effective way to give your savings a short-term boost without the need to lock your funds away for years on end.
Short term deposits are a low-risk way to make your money work for you and get a stable return on your investment.
What is a short term deposit
Short term deposits are a safe way to grow your savings. If you’re looking to invest and grow your savings for a period of up to 12 months, then a short term deposit may be worth exploring.
A short term deposit is essentially a sum of you money you invest for a short period of time at an agreed interest rate. At the end of the short term deposit period, the bank or lender will return the original amount you invested plus any interest you’ve earned on that money. Depending on the account, when the short term deposit finishes, you may have the option of rolling the funds over for another term.
Short term deposits vary in time, including 30 days (one month), 60 days (two months), 90 days (three months), 120 days (four months), 180 days (six months) and 12 months (one year). From time to time, lenders offer special terms like five-month special term deposits. When comparing short term deposits, you may notice that each term has a different interest rate. The general rule of thumb is that the longer the term, the higher the interest rate.
A short term deposit can be an appealing investment because they’re considered low-risk and provide a stable return. It’s worth noting that most short term deposits charge penalties if you choose to withdraw the funds before the short term deposit matures. To avoid any unnecessary penalties, consider both your short- and long-term needs before you lock away your savings for a fixed period of time.
Short term deposits appeal to some savers for a whole range of reasons, including:
- If you’re unsure whether you’ll need your money at some point in the near future
- You have a short-term savings goal to spend on a holiday or a house deposit
- You’re unsure if interest rates will rise
- You’ve never invested in a term deposit before and want to try it out
- You’ve inherited a large amount of money and want to lock it away until you need it
- You’d like to invest in several short term deposits with many different time terms
Whatever your reasons, find a term that suits your needs and an interest rate that gives you the greatest return. It always pays to do your research, so before you stash away your savings, compare your options.
How to compare short term deposits
If you’ve managed to amass some savings and you’re looking for an easy way to get a guaranteed return, short term deposits may be the answer. When comparing short term deposits, you’ll ideally want to find an offer that gives you the biggest bang for your buck and helps you grow your savings by paying the most interest.
Here’s what to look out for when comparing short term deposits.
The interest rate you earn on your short term deposit is essentially your return on investment. The percentage advertised is the amount of interest you’ll earn over the life of the short term deposit. When comparing short term deposits, look out for the ‘next interest rate’, which is the rate you can earn by depositing your savings for a longer term. If you don’t need access to your funds, investing for a longer period may earn you more interest.
When it comes to comparing interest, it’s not just about the rate. Take notice of whether the interest compounds monthly or at the end of the term. Short term deposits that compound interest monthly will usually earn you more interest over the term of the deposit. Of course, this varies depending on the lender and the amount you invest.
Some short term deposits usually have a minimum and maximum deposit amount. In most cases, the minimum deposit is $1,000 and the maximum differs between accounts. The interest rate may differ depending on the amount you invest, so compare your options to ensure you get the best rate of return.
If you open a short term deposit with another bank, check that you don’t need to open any additional accounts and that you can easily deposit and withdraw funds between banks.
When you invest in short term deposits, you’re agreeing to lock away your savings for a fixed period. If you need to access your funds before the maturity date, you’ll most likely be penalised. While it’s not ideal to prematurely withdraw your funds from short-term deposits, take notice of the charges so you know where you stand.
Savers looking for a more flexible way to stash away their cash might also want to consider high-interest savings accounts or savings accounts that offer bonus interest.
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
Find popular term deposits lenders from a wide range of Australian. View All >
A term deposit refers to when you lock your money in an account for a certain period of time and at a specified interest rate. You will not be able to access your money for the length of the agreed term without incurring a penalty fee.
A long term deposit generally refers to a term deposit that lasts for more than 12 months – which in some cases may be as long as 10 years.
Usually, the longer you store your money, the better the interest rate you’ll get, so a long term deposit will tend to pay higher interest than a short term deposit.
At the end of the term, you can roll over the money (plus the interest you’ve made during the term), or you can withdraw it all.
The best interest rate for a fixed term deposit changes all the time, as interest rates move up and down and banks compete with each other to win market share.
To find the best interest rate for a fixed term deposit, it’s helpful to understand how interest rates are applied to term deposits.
There are three factors that determine the fixed interest of term deposits:
- The size of your deposit
- The duration of the term
- The frequency of interest paid
Term deposits vary in duration from one month to five years or more. Interest rates generally work on a sliding scale; shorter terms get a lower rate, longer terms get a higher rate.
Here are a couple of examples of how interest is applied to term deposits.
- A $10,000 term deposit taken out over 12 months, with interest paid at maturity, might receive a fixed interest rate of 2.20 per cent.
- A $10,000 fixed term deposit taken out over 12 months, with interest paid quarterly, might receive a fixed interest rate of 2.00 per cent.
Using the size of your deposit, the duration of the term and how often you want to be paid interest, you can shop around for the best interest rate for a fixed term deposit.
If you’ve been shopping around for a term deposit, you might be wondering which bank has the best term deposit rates.
Term deposit rates will generally be affected by the amount you choose to deposit and whether you opt for a short or long term deposit.
Longer term deposits tend to have higher interest rates than shorter terms. The trade-off for earning a higher interest rate on your term deposit is that you can’t access your funds for the duration of the term deposit.
When comparing which bank has the best term deposit rates, it pays to do your research and compare how your funds will fare over the short and long term.
Unlike home loans or savings accounts which give you the option of fixed or variable rates, term deposits are always fixed, which means you get a guaranteed amount of interest over the term of the deposit.
The short answer is yes – a term deposit is, indeed, an asset.
Regardless that the funds are locked away for a fixed period, when it comes to the balance sheet, it’s considered an asset.
Aside from being an asset, term deposits are also cash investments which are held at financial institutions like banks or credit unions.
Term deposits work by investing a set amount of cash in a bank account for a fixed period at a fixed interest rate.
When you deposit your money in a term deposit, you’re agreeing to lock it away for a predetermined period, ranging from short-term periods of one month all the way to long-term periods of up to 10 years.
Term deposits are a popular way to boost your bottom line by investing your money and increasing the value of your asset.
When you open a term deposit, you agree to lock your money away for a set period and earn a fixed amount of interest during that period.
Where everyday transaction accounts give you the flexibility to deposit and withdraw funds as frequently as you like, term deposits trade flexibility for higher interest rates.
Once your funds are deposited in a term deposit, they’re fixed for the length of the term, meaning you can’t add additional funds midway through the term.
When the term deposit matures, you may have the option to add additional funds and roll the funds over for another term, or you may choose to withdraw the money at that point.
If you have extra funds to invest, you could consider opening an additional short term deposit account or a high-interest savings account.
It’s worth noting that you can withdraw the funds midway through the term, but a penalty is likely to apply.
Term deposits are flexible, low-risk, and earn you interest over time. But before you apply to open a term deposit, you might be wondering: how do term deposits work?
A term deposit is an agreement you make with a financial institution. This agreement will specify a certain amount of money that you will give the bank for a certain amount of time. In return, you’ll earn a fixed amount of interest on your deposit throughout your term.
Term deposits work as an exchange between a financial institution and an individual. You can think of your term deposit as a loan to the bank. Because you’ve loaned the bank your money, they’re willing to pay you interest on your deposit.
It’s many parents’ wish to invest money for their child early, so you might be asking the question, “Can children have term deposit accounts?”
The short answer is yes. You can open a term deposit with funds that will be used to support your child. There are two options when it comes to opening a term deposit for your child. The first is that you open the term deposit in your name rather than theirs. Opening the deposit in your name means that you have full control over the deposit and can withdraw money by signing a request.
You can also open a deposit in your child’s name, but you should consider waiting until your child can sign his or her name, as well as understand their term deposit account. If your child isn’t old enough to sign a request for withdrawal, you won’t have access to withdraw the funds if you need to.
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.
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.