All about business term deposits

In the same way that a personal term deposit lets you invest your personal money that you don’t need immediately, a business term deposit lets you invest business funds that your enterprise might not need immediately.

These savings vehicles also offer attractive and fixed interest rates so that you know how much your business will get back at maturity. These accounts can help you to achieve any financial goals that you might have for your business.

How business term deposits work

Business term deposits offer you a fixed rate of interest in return for you agreeing to invest your money for a pre–determined period of time. For example, if you invest $10,000 for 12 months at a rate of 2.2 per cent p.a. then you’ll definitely get $220 back at maturity.

Why should I invest money in a business term deposit?

There are always some aspects of your business that need a bit of extra money, so if you can earn some without putting in any actual extra hours, it’s a bonus.

A term deposit offers consistent returns

A fixed interest rate on a fixed deposit amount for a fixed amount of time means a fixed return. If you know you’ll be getting that $220 in October, you can decide what you’ll spend it on.

Term deposits offer better interest rates than many saver accounts

Not only is the interest rate better, but it’s insulated against any cash rate drops that might occur. Term deposits can run up to five years, so that’s a lot of time for cuts to happen.

Looking for the best term deposits

Your best course of action is to head to a comparison site to look at the different products on offer. You also need to look at:

The term and investment amount

The interest rates on both personal and business term deposits varies with the amount you invest and the length of the term. In general, the bigger the amount and the longer the term, the higher the interest rate, although there are exceptions, which is why you should spend some time comparing.

Bonus interest rates

Some banks might offer you a loyalty bonus if you roll your funds over into a new term deposit when your old one matures. Very often, this bonus is 0.10 per cent p.a. ore more on top of the headline rate.

Your provider

You don’t have to open a term deposit with your main banking provider if it’s not offering the best rates for your needs. Shop around to find the product that will work best for you and your business plans.

Other considerations for term deposits

While the interest rate and the length of the term are important, there are some other factors to look at when you’re comparing business term deposits.

The minimum deposit amount

Some business term deposits have a minimum deposit amount of $1,000 while others need as much as $10,000 to start. There may also be a maximum amount.

The frequency of interest payments

You should look at how often interest is calculated and compounded. If interest is calculated daily and compounded monthly then you’ll get a better return than one which compounds annually.

Any fees involved

Very few term deposits charge fees, but always make sure before you make any moves towards a particular product.

Loyalty bonuses

If your chosen product offers a loyalty bonus for a rollover at maturity then it might be worth choosing a shorter term to start with so you reap the extra interest during the second term.

The downsides of business term deposits

The biggest disadvantage to a business term deposit is the fact that your money is locked away until maturity. If you do need to access the funds in a hurry then you can, but you’ll lose some or all of the interest that you’ve already earned. You might also have to wait for up to 31 days to receive the funds, which could mean you miss out on a good business opportunity.

Another potential downside is having to make sure that you manage the money at maturity. It may well be that it’s best to let the money rollover into a new term and pick up a loyalty bonus interest rate as it goes. On the other hand, your money may get locked away for another term at a lower interest rate. A new term is usually the same length as the previous term, so if you don’t want your money languishing for months or years at an inferior rate, you’ll need to decide in advance what to do with it.

Fixed interest rates have their drawbacks, too

A fixed interest rate can insulate you from cuts to the cash rate, which is a very welcome protection. However, it can also insulate your money from rises in the cash rate, which can be very frustrating as you’ll have to sit tight and wait for maturity before you can hop onto a higher rate.

July’s best business term deposits

The ME Bank Business Term Deposit offers business savers interest rates of 1.15 per cent p.a. on terms of one to five years. Shorter terms receive lower interest rates and the accounts accept amounts from $5,000 to $1,000,000. If you need to make an early withdrawal, you’ll need to give 31 days’ notice and you’ll lose some interest.

The Bankwest Business Term Deposit offers interest rates of up to 1.20 per cent p.a. (five–year terms) on amounts between $10,000 and $2,000,000. Early withdrawal penalties apply.

The ING Business Term Deposit offers an interest rate of 0.95 per cent p.a. on balances between $10,000 and $10,000,000 invested for up to two years. You can choose your own maturity date with this account and if you make an early withdrawal your interest rate will be reduced.

Compare business term deposits here.

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