Five tips to maximise your term deposit earnings
Term deposits are a favourite, tried and trusted investment for savers, investors and retirees.
People saving for a goal often transfer lumps of cash from a savings account to term deposits as they build their lump sum. Investors use term deposits to balance diversified portfolios with the stability of cash. Retirees use term deposits to give them a reliable income stream while protecting their principal savings amount.
Term deposits are loved by many for their simplicity, safety and reliable earnings.
To get the most of your term deposit follow these easy tips
1) Know how much you will earn
Knowledge is power and with term deposits, you can work out exactly how much you will earn before you choose to commit to a particular product or institution. Use the Infochoice Term Deposit Calculator or Compound Interest Calculator to find out how much you will get from a term deposit before making a final decision.
2) Break up your money
Even people with modest savings balances to invest need to maximise their returns by staying on top of the best rates available. Rates change and go up and down regularly. Term deposit rates change more often than loan or savings account rates. If you lock all your money into one long term, you risk missing out on the best rates available if rates change. Many term deposit investors split their money into more than one term deposit. Each term deposit will have a different maturity date or term so the saver can expect to be able to grab good rates as their terms expire and the savings are reinvested.
3) Ensure your money is government guaranteed
Term deposits, like all bank and credit union deposits and accounts, are guaranteed by the Commonwealth Government of Australia up to $250,000.00. Savers with more than $250,000 to invest who want to retain the government guarantee over all their money need to break up their money into smaller deposits of under $250,000. These smaller deposits need to be spread around different institutions to fit under the cap. All authorised Australian deposit taking institutions, like banks, credit unions and building societies are covered by the guarantee.
4) Decide how you want interest paid
Do you want your interest deposited into a linked transaction account every month or quarter? Or would you rather have one big lump sum paid to you at the end of the term? Maybe you want to reinvest the interest back into the term deposit so you can start earning compound interest – interest on your interest.
If you choose to have your interest paid to you as regular income, you may receive a different (maybe lower) interest rate. Reinvesting or retaining the interest may make you eligible for a higher rate.
5) Choose the best rate available
Don’t limit your choice of term deposit to the bank that currently provides you with a transaction account or loan. A term deposit from an Australian bank or credit union can usually be linked to an account with any other Australian bank or credit union.
Use the Infochoice term deposit comparison tables to find the best rates now available in the market.
Right now, ING DIRECT has 12 month term deposits paying 3.0 per cent plus a loyalty bonus.
RaboDirect has 6 month terms paying 2.85 per cent p.a.
UBank has three month term deposits delivering 2.71 per cent.