Are you worried about what the election of Donald Trump as president of the United States of America might mean for you personally? Are you concerned about economic commentators predicting that property market values could fall significantly? Some commentators are predicting increased global uncertainty and volatility on share markets as countries posture and threaten each other over trade and security issues.
A trade war between China and the USA, or even just the USA and Mexico, could have widespread global ramifications that would be felt by local companies and share markets. Fewer Chinese exports to the USA could mean fewer raw materials being exported by Australia to China. New trade barriers could mean higher prices for goods and services in Australia.
In this uncertain environment, investors look for safe havens for their money. In an uncertain world, you can count on term deposits. That’s why they are a foundation of any diversified investment portfolio. For generations, term deposits have helped Australians build wealth, save their money and maintain an income stream, often in retirement.
Why are term deposits a safer investment?
Term deposits offered by an Authorised Australian Deposit Taking Institution, like a bank, credit union or building society are guaranteed by the Commonwealth Government of Australia, up to a value of $250,000. Share market and property investments are not guaranteed. Investors with more than $250,000 to invest can split their money into smaller lump sums and invest those smaller amounts in term deposits with different institutions to ensure they are 100 per cent covered by the government guarantee.
But that government guarantee has never been called upon by any investors, because Australia has a very safe and strong banking system overseen by powerful government regulators.
Term deposits are a relatively simple investment that is easily understood by investors. You agree to leave your cash in a deposit product for an agreed length of time and the institution agrees to pay you a simple interest rate. The principal investment sum is not at any significant risk. It’s practically impossible to lose your money investing in term deposits.
How to find a good term deposit
InfoChoice lists hundreds of term deposit products from all of Australia’s significant banks and credit unions. Generally savers and investors need to look for the best rates available when searching for a term deposit. There should be no fees associated with your term deposit, unless you want to withdraw your money before the maturity date. Then you might be charged some or even all of the interest earned, but you will still get your principal deposit amount back.
The best rates are often from longer term deposits. But if you invest all of your money into one long term deposit, you could miss out on better rates that come up while your money is locked away.
An active term deposit strategy
Smart investors often break their cash up and invest in more than one term deposit with each deposit of a different length. That allows them to take advantage of the best rates available at any given time. It also exposes them to the higher rates of the longer terms, while providing access to cash and the ability to grab good term deposit deals as the shorter term deposits expire.
More than 90 per cent of term deposit investors choose terms of 12 months or less.
Term deposit rates change regularly. Banks and credit unions often have term deposit specials when they need more funding for their lending activities.
When your term deposit is approaching the end of the term – the maturity date – you need to make an active decision about what to do with your money. Otherwise the bank or credit union might roll your cash into a new term deposit of the same length. The rate may now be lower and this is called term deposit roll-over risk.
What are the best term deposit rates right now?
The best term deposit rates in February 2017 are:
The best 90 day (three month) term deposit rate now listed by InfoChoice is currently 2.75 per cent from FirstMac.
The best 180 day (six month) term deposit rate is currently 2.85 per cent from ME Bank.
The best 12 month (one year) term deposit is currently 3.00 per cent from Teachers Mutual Bank, The Rock and UniBank.
The best two year term deposit rate is currently 3.10 per cent from NAB, People’s Choice and Qudos Bank.
You can check out all the term deposit rates and products listed on InfoChoice here.