Term Deposit Accounts

By: Richard Greenwood

A term deposit is a set term savings account - you deposit a lump sum of money for a term you decide on up front. Typically the term can be anywhere from 3 months up to 5 years. When the term comes to an end you can choose to withdraw your deposit along with interest earned or you can redeposit the funds. Typically the longer the term the greater the returns but sometimes a bank may have special offers on a particular term such as 12 months.

For the Australian consumer, it is unfortunate that term deposit plans have not been rated by Cannex as yet. This certainly makes identifying the top term deposit plans more difficult than if the rating had already been done. To help you along your way, here are a few things you may want to bear in mind when researching and comparing term deposit plans.

Assess your future financial needs before committing to a term deposit

Before you enter into a term deposit, you will need to know how much to deposit and how long you want the term to be. When making this decision, be sure to take a good hard look at the foreseeable future, to plan your cash flows carefully and to consider any longer term contingencies that may result in your having to prematurely end the term deposit agreement. Only deposit money you are fairly certain you will not need for the term of the deposit.

Interest rate cycles influence term deposit viability Interest rates are cyclical. Sometimes they are a a high and other times, low. Make a point of understanding where the interest rates are at before entering into a term deposit. This is especially valid if you opt for terms two years and longer. At present, the Australian interest rates are fairly high and you may stand to benefit from being locked in at this higher rate over the term of the deposit - more so if the interest rate cycle takes a downward turn.

Choose the best banking institution for your term deposit

Shop around. When you evaluate the different term deposit plans offered, be sure to consider the following:

o Minimum amount - most banking institutions have a minimum amount that has to be deposited when opening a term deposit account.

o Interest rate - These differ greatly between banks. Also check whether the rate is variable or fixed.

o Banking fees - Some banks don't charge fees. Unsure you undeerstand the impact of any hidden fees or charges.

o Minimum term - check that the bank's minimum term matches the time period you require.

o Penalty fee - Early withdrawal generally results in a penalty. Check what the maximum penalty will be if you are forced to make a withdrawal before the end of the term.

o Renewal and Withdrawal window - In the fine print, you should look out for the automatic renewal clause. This clause generally details that should you not withdraw your money within a certain time frame after term deposit expiry, your money will be re-deposited.

Finally, if your depositing a large amount then try and negotiate better terms & ineterst rates. There is a very real chance that you will find the banks fairly ready to compromise in order to secure your term deposit business.

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