Investing in term deposits
by Wealth Know How in DIY Investing
Learn about the definition and benefits of term deposits in this short, easy to understand video which outlines the basics you need to know. As much as it’s important to know about the advantages it’s key to your future decisions making that you have an appreciation of the drawbacks as well. It’s a competitive market out there and we also discuss shopping before committing.
- sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
Published on 25 Jul 14
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Learn about the definition and benefits of term deposits in this short, easy to understand video which outlines the basics you need to know. As much as it’s important to know about the advantages it’s key to your future decisions making that you have an appreciation of the drawbacks as well. It’s a competitive market out there and we also discuss shopping before committing.
Sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
-
Venezuela tension heats up
Duration 03:16
-
Aussie dollar surprises market
Duration 03:10
-
Markets climb as investors watch US healthcare bill
Duration 02:31
It’s a deposit to the bank, which agrees to pay you a specified interest rate – which will not change – for the term, and to repay the full amount at the end of the term.
You can choose a term from one week to five years, and the frequency of the interest payments – you can wait until maturity to receive your interest or have it paid regularly. You can ‘break’ the term deposit before the end of its term, but there may be a cancellation fee or a reduced interest rate if you do.
The benefits of term deposits are:
- There's virtually no risk of losing your money;
- You earn a rate of return that's usually higher than a regular bank account;
- The interest rate will not change over the term you choose; and
- The commonwealth government guarantees term deposits of up to $250,000 placed in all banks, credit unions and building societies.
However, term deposits do have their drawbacks: If you wish to access your money before the term deposit matures, a penalty is likely to apply. Also, if you were attracted by a “honeymoon” rate, it can drop if the investment automatically rolls over to a new term at maturity.If you’re in the market for a term deposit, shop around for the best rate: here, the independent comparison websites will be helpful.
It’s also important to shop around when your term deposit is maturing and you want to invest for a further term. Your bank or credit union will write and tell you how much interest you've earned and explain what your options are. If you do nothing, your term deposit may roll over into a new term deposit. The new term deposit may have a lower interest rate than the original or other similar products, but the same term.
Before a term deposit matures call your provider straight away if you're not happy with the interest rate they offer. You should be able to switch your term deposit to one that pays a more competitive interest rate or change providers.