When an individual comes into money, whether it was bequeathed to them or they acquired it from selling their own assets, they need to adjust their current financial plan, or come up with a new plan altogether if they did not have an existing one. One financial option is investing in a term deposit.
To answer the question, ‘what is a term deposit?’, a term deposit is a type of investment plan in which a customer invests a lump sum of money into a bank or financial institution for a predetermined amount of time, for a fixed interest rate. With most term deposits, the customer cannot access the money they invested until the chosen length of time is up. When the time is up, the customer acquires the interest on the amount of money they deposited.
Interest rates may be determined by the length of the term deposit, the size of the deposit, and how frequently interest payments have to be made, among other things. Because of these factors, a customer that has a term deposit that requires them to make more frequent interest repayments may pay at a lower interest rate compared to a customer who makes less frequent interest repayments.
The length of most term deposits is usually between one month, at the shortest, to five years, although customers can choose other options for the length of times and fixed interest rates. In the event that a customer wants or needs to access their money prematurely, and attempts to do so, they may be required to pay costs.
Why Invest in a Term Deposit?
When considering to invest in a term deposit, customers should already have an idea of how long they intend to invest and at what rate, whether or not the interest would be paid at intervals, such as every month or every quarter, or if it would be paid at the closing of the term. From there, a customer would have to decide if their money will be automatically rolled over and reinvested in another term deposit, or if they will have it transferred to a bank account.
Individuals who decide to invest in a term deposit tend to do so because they find the fixed interest rates attractive compared to the fluctuating interest rates of savings accounts. Additionally, with term deposits, there are typically no fees to pay upfront or down the road until the investment reaches maturity.
When investing in a term deposit, the customer has a government guarantee of $250,000. In the event of disaster or collapse of an authorized deposit-taking institution (ADI) that the customer was banking with, the customer could recover as much as $250,000 of their deposited money from the government. This guarantee helps term deposits gain their reputation as having little to no risks.
Security of Term Deposits
The guarantee from the Australian government is the main aspect of term deposits that demonstrate how safe they are. Another important aspect of term deposits that make them a safe investment is that they are not only stable, they also have access restrictions. The customer cannot prematurely access their money, and may only be allowed to do so if they pay to do so. If the owner of the money cannot access the money for themselves, it is unlikely for anyone else to gain access to it, so customers do not have to worry about their money being stolen or going missing. A term deposit is a secure, reliable financial option that keeps a customer’s money safe and removes the temptation of spending it and unnecessarily splurging.