Long term deposit vs short term deposit

For people looking to grow their savings, term deposits make the job simple. Put your money away for a set period, usually between 30 days and five years, and earn interest while you wait.

But while the premise is a simple one, it pays to do your research on the different types of term deposits available. The first question you need to ask yourself is whether you want to invest in a short-term or a long-term deposit?

Long-term deposits

Long-term deposits refer to terms of more than 12 months. You’ll usually have the option to put your money away for between one and five years. As an incentive to leave your money untouched for a longer period, long-term deposits usually offer higher interest rates than the shorter term ones.

This ‘set and forget’ strategy is generally used by those on modest incomes or people who prefer a more passive approach to investing money. While you might miss out on the opportunity to reinvest in a better interest rate sooner, you can guarantee a certain return after your term matures.

Short-term deposits

While you might earn a lower interest rate on a short-term deposit, you’ll also have access to your money a lot sooner. Short-term deposits are for 12 months or less. This can usually be a term of 30 days, 90 days, 6 months or 12 months.

Short-term deposits are typically more popular among Australians who want to access their money sooner, but not always to spend it. While some might be saving for upcoming holidays or events, such as a wedding, others are opting to be savvy investors.

A short-term deposit might offer a lower interest rate, but allows you to monitor the market carefully and reinvest at regular intervals to take advantage of interest rates.

What to consider when comparing term deposits

Depending on your situation, a short-term or long-term deposit might be ideal for you. To help you make your decision, make sure you carefully consider:

· Your saving strategy: How active are you in growing your savings? The answer to this question will help you decide what type of term deposit suits you.

· Interest rates: No matter the length of the term, consider how much interest you’ll earn. Take the time to compare different terms.

· Term lengths: Do you have the time to continuously reinvest your money? Or are you saving towards a certain goal in a certain time frame? Knowing these answers will help you make your decision.

Unsure which type of term deposit suits you? Compare term deposits with InfoChoice to help you work out what suits your saving strategy.

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