The special new term deposit rates banks are offering to help households during COVID-19.
What is a Term Deposit?
A term deposit is an amount that you have invested for a set amount of time, which earns a fixed rate of interest over the period. Your money is locked away for the period of time you agree on, and the interest rate doesn’t change. As long as the financial institution is reliable, term deposits are very low risk, and their predictable nature means you know what you’re getting and when.
Term deposits typically offer a higher interest rate than savings accounts, but they aren’t the best option if you’re going to need regular access to your money. In fact, withdrawing funds before the term deposit is over can incur a significant fee. Term deposits are used for an amount that you are happy to have sitting in a bank, earning you interest.
They’re a great option for when you want to save for a bigger item like a house deposit, or as a steady, reliable investment option where you know how much interest you’ll earn. If you find money on hand to be a little bit too tempting, a term deposit can keep it out of your reach while also increasing your savings.
Term Deposit Conditions
When choosing a term deposit, you’ll need to take the different factors into consideration when you compare. The interest rate on offer is obviously important, as it tells you how much your money will earn. Your interest can be paid out when the term deposit matures, but different institutions might offer to pay your interest out monthly or annually, so you can spend your interest without touching the principle amount, if that works for you and your saving goals.
The amount of time is also important, including how long you can invest for and how the length of time influences the interest rates on offer. The amount you are planning to invest will also impact your interest rates. You should be mindful of what set-up or account fees you will be charged. While you shouldn’t plan to withdraw your money before the term deposit has matured, circumstances can change. For that reason, make sure you know how you withdraw your money early if necessary (most institutions require 30 days’ notice, for example), and how much that will cost you in penalty fees.
COVID Conditions
With the uncertainty of these times, banks have been offering a range of different relief options for their customers, including temporary freezing of mortgage repayments to help ease the financial burden. It’s not a complete holiday though – at the end of the freeze period interest capitalisation applies, meaning your regular payments will increase to cover the time you had off, or it will be added on at the end of your loan period. Still, it can be helpful for short term relief.
There are a range of special term deposits on offer from many different financial institutions, including the big banks. They are designed to offer customers a safe place to store their money, especially through uncertain times. Some are offering special term deposit rates for specific groups such as seniors aged 65 and over.
You’ll need to consider your own circumstances and compare your options, and they change regularly. Bear in mind that while comparison websites can be a useful tool, they make commissions by selling you a product, so you’re likely to see some bias in the products they recommend.
Making the most of the situation.
Whether you have some extra money or you’d like to safeguard what you already have, a term deposit can help keep your money out of easy reach and earning more than a simple savings account. It’s a great way to save for a house deposit, those renovations you’ve been planning, or to just stop the online shopping chipping away at the money you’re trying to save.
If you have a set savings timeline and don’t need quick access to your money, a term deposit might be a good option to help you reach your goals. And if buying a house is your goal, don’t forget to chat to the team at Love & Co. to access their experience and market knowledge to help you get the best place to meet your needs.
If you would like to learn more, please don’t hesitate to get in contact with our office today.