Choose term deposits wisely

Advisors recommend that investors wanting a term deposit shop around, ask questions and choose wisely because TD products vary and returns can be affected by making the wrong decision.

Interest rate returns are generally highest for term deposits with the longer terms. Currently some term deposits for 12 months terms are paying 6.8 per cent and above. But having to ask for your money back early, because of unexpected circumstances can be costly, in terms of interest lost.

The same applies to the amount invested in a term deposit. Higher interest rates can apply to higher amounts of money locked away, but put too much away and the investor could be risking having to ask for some back early.

Don’t just compare the big bank term deposit products. All deposit products from Authorised Deposit taking institutions, such as credit unions and building societies are guaranteed free of charge by the federal government for amounts up to one million dollars. The guarantee ends in October 2011, less than two years from now.

Check terms and conditions for what the institutions does when the maturity is up – do they reinvest the money at a lower rate, the same rate or do they contact you to make a choice?

Source: The Daily Telegraph