The InfoChoice Term Deposit Calculator shows you the potential interest you can get by agreeing to deposit a specific amount of money for a predetermined period.
When it comes to making your money work for you, few options offer the stability and predictability of term deposits.
A term deposit is a popular savings option offered by banks, credit unions, and other financial institutions to Australians who would want to start their investment journey — it allows you to grow your savings with a guaranteed return over a fixed period.
When you invest in a term deposit, you are essentially lending your money to a financial institution for a predetermined period, known as the "term." During the duration of the term, your money is held securely by the institution, and in return, you receive a fixed interest rate on your deposit.
At the end of the period, you have the option to withdraw your initial deposit along with the interest earned or to reinvest the entire amount, including the interest, in another term deposit.
Factors when comparing term deposit products
Not all term deposit products are created equal — while the interest rate is the most critical factor to consider when comparing offerings, you will also need to factor in other specifications of the product stated in the fine print.
Here are the most relevant features you need to consider:
Interest Rates: The interest rate directly impacts the return on your investment. Term deposit interest rates can vary widely among different financial institutions, so it is crucial to shop around for the best rates.
Term Length: Term deposits come in various term lengths, ranging from a few months to several years. The term length you choose should align with your financial goals and timeline. There are shorter terms lasting one to three months long, while there are longer lock-in periods that could last for years. Longer-term deposits might offer higher interest rates, but they require a more extended commitment.
Interest Payment Frequency: Another thing to consider is the frequency of the payments — some term deposits pay interest monthly, quarterly, semi-annually, or annually, while others only pay interest at the end of the term. Consider your income needs and preferences when selecting the interest payment frequency. Oftentimes, term deposit products with annual and end-of-term payments have higher interest rates.
Penalties for Early Withdrawal: You should also be aware of the penalties for withdrawing your funds before the end of the term. While term deposits offer security, early withdrawal may result in reduced interest or penalties.
Minimum Deposit Requirements: Different financial institutions may have minimum deposit requirements for their term deposits. Some institutions might allow you to open a term deposit with just $500, while others might require $10,000 or more. Oftentimes, higher deposit requirements have more attractive interest rates.
Comparing Term Deposit Rates
When shopping around for a term deposit rate product that fits your needs, you will need to consider doing the following:
Use Online Tools: Various online tools and websites allow you to compare term deposit rates from different financial institutions. InfoChoice has a comparison tool that allows you to search and compare the best value term deposits from a range of lenders. There are also calculators that help you estimate the interest you can earn over a set period with a fixed interest.
Consult Financial Institutions: Contact banks and credit unions directly to enquire about their term deposit rates and terms. Some institutions may offer preferential rates to existing customers or for larger deposits.
Consider Online Banks: Online banks often offer competitive term deposit rates due to lower operating costs. Do not limit your search to brick-and-mortar institutions; explore online options as well.
Read the Fine Print: Before committing to a term deposit, carefully read the terms and conditions. Pay attention to any fees, penalties, and the process for renewing or rolling over the deposit at the end of the term.
Seek Professional Advice: If you are uncertain about which term deposit is right for you, consider seeking advice from a financial advisor. They can help you assess your financial goals and risk tolerance to make an informed decision.
Comparing term deposit rates is a crucial step in maximising the returns on your savings. Term deposits offer a secure and predictable way to grow your money, and with careful research and comparison, you can find the best option to make your money work for you.