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An SMSF term deposit is one potentially low-risk option for investors looking to grow their self-managed super funds.
But before you make a decision, it’s important to understand what SMSF term deposits are and the interest rates these can earn.
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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.
What is a self-managed super fund?
A self-managed super fund is a superannuation option in which the members are also the trustees. As the trustee of your own super fund, 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 are slightly different because the member controls the fund. This allows them to make investments, manage contributions and maintain records. Members can choose to manage the fund themselves or engage an SMSF specialist to do the work for them.
Can I invest in a term deposit with my self-managed super fund?
Yes, you can. 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 for self-managed super funds, which they usually call “SMSF term deposits”.
Like other term deposits, the purpose of SMSF term deposits is to help you increase your savings. In the case of SMSF term deposits, these savings are for your retirement.
What are the benefits of an SMSF term deposit?
There are several potential benefits of SMSF term deposits.
- Low risk: A term deposit provides you with a relatively 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.
- Low maintenance: Managing your super fund can be time-consuming. So some might consider a “set-and-forget” option that requires less effort as a part of their broader investment strategy.
- No fluctuations: 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 for the entire term.
Are there SMSF rates associated with SMSF term deposits?
The financial landscape is always changing, and the interest rates being offered on term deposits are always shifting. The same applies for SMSF term deposit rates.
However, there are a couple of reasons why your SMSF term deposit might earn more interest than other term deposits:
- Longer term: 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 access a higher interest rate if you were locking away your money for, say, 10 years, as opposed to one year.
- Option to reinvest: You typically have more time to roll your deposit over into a new investment when your term expires. 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 can reinvest the funds into a new deposit. This could potentially earn you more interest in the long run.
- Bigger deposit: Many SMSF term deposits have a minimum balance requirement, which 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?
As with many investment products, one important way to reap the benefits 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, especially if you’re locking away your money for an extended period. To get the best fixed rate, compare all SMSF term deposit providers 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 you may not need to pay unnecessary fees on another account.
What are some things about SMSF term deposits I should be aware of?
One thing anyone who is considering SMSF term deposits should know about is automatic rollover policies. At the end of your term, some term deposits roll over automatically if you don’t notify your provider of your intent after the term expires. This means that your money is reinvested in a new contract when your term ends, potentially at a lower rate or under different conditions. Make sure you know your term expiry date and to do your research before your term ends so you’re still getting the best rate that you can.
Another thing to be aware of is the minimum balance requirement. Some financial providers may require you to deposit a minimum amount in your SMSF term deposits. You should consider whether this minimum deposit amount aligns with your own financial goals.
It’s also important to know the fees your provider might charge you for your SMSF term deposit. While many providers don’t charge fees, it’s a good idea to understand whether part of your deposit is going towards fees and if the investment is worth any potential fees you are paying.
A financial writer for RateCity, Alison Cheung specialises in housing and real estate. Since 2015, she has written about commercial and residential property for Domain Group and NewsCorp in print and online, and has been published in both Domain and RealEstate.com.au. Alison is passionate about property investment and innovations in the real estate industry, and firmly believes in the most basic yet vital financial advice ever given: saving for a rainy day.
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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.