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If you’re looking for a low-risk way to grow your self-managed super fund, SMSF term deposits might be an excellent solution.

But before you invest, it’s important to understand SMSF deposits and the SMSF rates associated with them.

What is a self-managed super fund?

A self-managed super fund is a superannuation option in which the members are also the trustees. Being the trustee of your own super fund means that you hold both the legal and management responsibilities. Self-managed super funds are designed to provide the same retirement benefits as other superannuation funds.

Although self-managed funds work similarly to other super funds, they work differently because the member controls the fund. This control allows them to make investments, manage contributions and maintain records. While some members choose to manage the fund themselves, others look to an SMSF specialist to manage, organise and advise on their finances.

Can I invest in a term deposit with my self-managed super fund?

Because you are the trustee of your self-managed super fund, you can choose to invest a portion of your super balance into a term deposit. Some financial institutions offer special term deposits specifically associated with self-managed super funds, which they usually call ‘SMSF term deposits.’

Like other term deposits, SMSF term deposits are designed to help you increase your savings. In the case of SMSF deposits, these savings are for your retirement.

What are the benefits of an SMSF term deposit?

There are several benefits of SMSF term deposits. One of these is that a term deposit provides you with a low-risk, steady way to grow your retirement fund. After you agree upon your fixed interest rate, you know exactly what your fund will be earning throughout the entire term.

Another benefit is that an SMSF term deposit is low-maintenance. Managing your super fund can be time-consuming, so having an investment option that requires minimal effort might be a welcome addition to your investment strategy.

Because term deposits earn a fixed interest rate, there’s no fluctuation to monitor or manage. Essentially, you can lock your money away to earn interest, and you don’t have to worry about any changes or administration for the entire term.

Are there SMSF rates associated with SMSF term deposits?

The financial landscape is always changing. This volatility means that competitive term deposit rates are always shifting, and the same is true with SMSF rates.

However, there are a couple of reasons that your SMSF term deposit might earn more interest than other term deposits. The first of these is that many fund members choose to invest in a term deposit years before their retirement. Because the interest rate offer tends to go up as the term gets longer, you might find that you can grab a higher interest rate than you might if, say, you only wanted to invest in a term deposit for one year.

Additionally, you typically have more time to roll over your deposit into a new investment when your term has expired. For example, you might open a term deposit for five years originally. If your retirement is still years away when your five-year timeframe expires, you’re able to reinvest into a new deposit. This will earn you more interest in the long run.

The second reason that SMSF rates tend to be very competitive is that many of them have a minimum balance requirement. This requirement means that you must commit a certain amount of money into the deposit to be eligible. Because you’re depositing a larger sum, you may be offered a better interest rate.

How do I get the most out of my SMSF term deposit?

The first step in making the most of your SMSF term deposit is to find a competitive interest rate. The interest rate of your deposit won’t change for the duration of your term, so you want to be sure you’re getting the best deal. To get the best fixed rate, compare all providers of SMSF term deposits and choose the best rate for the term you want to invest.

The second way to make the most of your SMSF term deposit is to find an account with zero fees. Many term deposits on the market offer fee-free accounts, so there’s no reason to pay unnecessary fees on another account.

You should also be aware of automatic rollover policies. Some term deposits roll over automatically if you don’t take action at the end of your term, meaning that your money is reinvested in a new contract when your term ends. Be aware that when your money is automatically reinvested, it might be at a lower rate. To avoid missing out on potential interest, make sure to do your research when your term ends to ensure you’re still getting the best rate that you can.

FAQs

Term deposits can be a great way to build your savings, but before you invest, you might have one important question. Are term deposits safe?

When it comes to investing your money, you can choose between high-risk and low-risk options. High-risk options tend to have a better potential payout, but you also risk earning no profit at all or even losing your original investment.

Low-risk options tend to earn less profit than high-risk options, but they’re also safer, with little to no risk of losing money. Term deposits fall into the low-risk category.

Term deposits are safe because they’re low-risk, but they’re also protected by the Australian government’s Financial Claims Scheme. This government guarantee will insure your deposit for up to $250,000 per person, per institution, meaning that even if the bank collapses, the government will reimburse you for your deposit.

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^Words such as "top", "best", "cheapest" or "lowest" are not a recommendation or rating of products. This page compares a range of products from selected providers and not all products or providers are included in the comparison. There is no such thing as a 'one- size-fits-all' financial product. The best loan, credit card, superannuation account or bank account for you might not be the best choice for someone else. Before selecting any financial product you should read the fine print carefully, including the product disclosure statement, fact sheet or terms and conditions document and obtain professional financial advice on whether a product is right for you and your finances.

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