Is a term deposit right for you?

If you’re across the differences between savings accounts and term deposits, but still aren’t sure if a term deposit is the right choice for your savings, this article is for you. We’ll take a close look at term deposits and explore both the advantages and disadvantages so that you can make an informed decision.

A term deposit could be for you if…

You’re easily tempted to spend

Do you set yourself a savings goal but fall short before reaching it because you end up using the money you’ve stashed for something completely different? It’s okay – we’ve all been there. If this sounds familiar, then a term deposit may be a good option for you.

As the name suggests, term deposits lock away your money for a fixed amount of time. During this ‘term’ you can’t access your funds – well, not without giving your bank plenty of notice and forfeiting some of the interest earned, anyway! Some banks will also charge a fee for closing your term deposit early.

If you’re easily tempted, a term deposit could be just the incentive you need to avoid touching your hard-earned savings. You can choose a term deposit with a term of just two months, or even lock away your money for 60 months (yes, five years!).

You’re not comfortable with risk

Some investment options come with higher levels of risk than others, such as property or shares. Term deposits on the other hand are classed as low-risk investments.

For a start, you know that your money is only going to grow with a term deposit. Locking in the interest rate at the time of opening the account, means you can calculate exactly how much your investment will grow by. At maturity, if you haven’t closed the account early or made any withdrawals, you’ll have earned money by allowing your initial balance to just sit there. Plus, if the interest rates of savings accounts drop, your term deposit won’t be affected.

Secondly, the government-backed Financial Claims Scheme covers term deposit accounts. That means your deposits of up to $250,000 in total are protected if something was to happen to your bank. As an approved deposit taking institution, P&N Bank term deposits are protected by the scheme so you can be sure your investment is safe.

You’re not a fan of complicated

Savings accounts come in all forms, usually with various eligibility criteria that needs to be met to get a higher interest rate. This can be great for building savings because you’re forced to save a minimum amount every month to earn the good rate but remembering to pay money in – or not withdraw it or meet other criteria – isn’t easy for everyone.

With a term deposit, you don’t have to remember to do (or not do) anything to get your savings to grow. You can just ‘set and forget’ for your chosen term and won’t have to think about it again until your account reaches maturity (or when the term is up). That’s when you’ll have to decide whether to reinvest or withdraw your stash of cash.

Plus, you won’t have to think about account fees with a term deposit – unless you remove your balance early, of course.

You’re interested in interest

Let’s be honest. When it comes to your savings, earning interest is probably the most important thing for a lot of people. And this is where term deposits often shine, as the interest rates are usually higher than regular savings accounts.

In fact, it’s not unusual for banks to pay their highest interest rates on their longer-term accounts. But before you rush off to open a five-year term deposit, remember that this is not always the case! Check out our current rates for term deposits with terms less than 12 months to see what we mean.

The timing of when your interest is paid also usually varies with the length of your term. For example, term deposits of 12 months or less, will generally pay interest at maturity. For term deposits more than one year in length, you’ll likely be able to choose whether your interest is paid monthly, quarterly, or annually. The options for where this interest is paid will vary from bank to bank, but with a P&N Bank Regular Income term deposit, you can have your interest paid back into your term deposit instead of a different bank account. That means you can earn interest on your interest (also known as compound interest).

Remember, it may be a good idea to not just focus on the interest rate. Think about if you can do without accessing your money for the length of the term you’re considering. If a shorter-term investment would suit you better, go with that instead to avoid any penalties by withdrawing early. 

So, is a term deposit right for you?

Hopefully we’ve delved into term deposits enough that you now know whether opening one would suit you. If you’re interested in investing your money (not just in a term deposit) but are still unsure, contact a Financial Advisor to discuss the best options for your financial situation.

And don’t worry if you have further questions about P&N Bank term deposits – our friendly local team can answer them. Visit a branch, chat online or give us a call to talk about the different savings options available from us.