Keeping dipping into your savings? DW, we've all been there. A term deposit may be for you.
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We know the ol’ story. You transfer 20% of your pay cheque into your savings account...just to transfer it back out when it gets close to payday. Or when the Click Frenzy sales are on.
If you can relate...then a term deposit might be for you.
Term deposits are pretty straightforward. They're But remember, it’s not so straightforward to take your money out of the account during the term. It’s set-and-forget.
Here are the key features you need to remember about term deposits:
The two main features of a term deposit are:
So, when you’re shopping around for a term deposit, try and look for the term that suits you (they generally range from one to five years) and the highest interest rate.
Because term deposits are locked, you can’t add any money to them once they are created. Think of it as a locked safe that you don’t have the password to (for a period of time).
However, when the term deposit matures (aka the term ends), your bank or lender might give you the option to add more funds for another term, or to withdraw your money.
The key difference between a savings account and a term deposit is that you can access your funds at any time with a savings account.
However, with a term deposit, the intention is that you keep your funds locked away for the length of the term.
The other key difference is the interest rate. With interest rates so low at the moment, the average term deposit rate in 2021 isn’t much better than the average savings rate.
The big four banks currently have term deposit rates of around 0.35% for 3 years. The average savings account interest rate is around 0.1%.
If you’re saving for a particular goal (i.e. a house, car or wedding), term deposits can be a good idea. This is because the feeling of dipping into your savings can sometimes be a ‘lil too hard to resist (DW, we’ve all been there). So, having your money locked up...with the incentive of a higher interest rate....can be really helpful.
However, if you want to have constant access to your savings just in case of an emergency, having a savings account might be a better option.
We reckon you may want to consider having both. For example, you might want to have $5,000 tucked away in a term deposit for the next 5 years...and keep saving into your savings account for other financial goals - or just for emergencies.
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