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5 ways to use a term deposit


An investment option for all ages.

We all want to make the most of our money – and sometimes it’s hard to know where to park your cash for the best returns, right?

The good news is, term deposits can be a safe, low-risk way to build wealth, regardless of your age. The very nature of this type of investment means that your money will grow at the same fixed interest rate – even if the cash rate drops during the term you’ve chosen. A typical savings account may be subject to the ebbs and flows of the market’s variable interest rates.

You’ll typically need between $1,000 - $5,000 to open one – and as a rule of thumb, the longer your nominated term, the better the interest rate you can get. Depending on your age, here are a few reasons you might want to consider opening a term deposit. 

In your 20s…

Although many 20-somethings may have other priorities than planning ahead, time is on your side in the wealth-building game, say finance experts – and starting early might mean you enjoy greater financial freedom later in life. A term deposit can be a simple, set and forget way to earn interest on a lump sum you’re looking to lock away.

In your 30s…

Your 30s are typically about moving up the career ladder and maybe thinking about a family. You may have purchased a home and be looking to start a family, or have kids already. Consider building on investments, whether you commit extra earnings to a savings account, or pop lump sums (like a work bonus or tax return) in a low-risk term deposit. Term deposits can be used to start investing for your kids’ futures, too.

In your 40s…

It’s a decade in which you’re probably at the peak of your earning potential, and you’ll have lots of extra expenses if you’re raising a young family. If you want your kids to go to specific schools, a term deposit can be a great way to lock away funds for that, as you may be able to time your nominated term (usually 1-5 years) to mature around the same time your child starts school, meaning it could help you with the school fees and maybe even some interest left over that you could reinvest.

In your 50s…

You may be an empty-nester by now or close to it – and probably have a bit more disposable income. Now’s the time to really look at your investment portfolio, including how much you’re socking away for superannuation.

A term deposit locks in your interest rate for a set period of time so you know exactly how much interest you will be earning for that period. One strategy to consider might be to ‘ladder and stagger’ your terms, splitting your money into separate term deposits with differing maturities so that you receive your interest payments at different times, instead of all at once. It can be a bit more work, but if you are looking for an investment option with relatively low risk, term deposits might be a suitable option for you.

In your 60s…

If you’re looking forward to retirement, you may be keen to explore investment opportunities beyond superannuation, or ways to make your savings stretch further. If you’re looking to set aside regular funds to help the grandkids with something like a home deposit, a standard savings account might be better. But, if you want to pop a decent amount into a low-risk investment account with a competitive interest rate – and you’re willing to play the long game in order to get good returns on your money – a term deposit may be something to consider.

Term deposits are one of the deposit account types supported by the Australian Government’s Financial Claims Scheme, or FCS. This means account holders with most banks, credit unions and building societies are covered to the value of $250,000 in the event the institution were to fail. So, while your return on a term deposit may not be as high, some other traditional investment options such as shares and investment bonds are not backed by this guarantee.

What to look for in a term deposit

Choosing the right term deposit does require a little leg-work. You should compare:

1. Interest rates. Look for the highest interest rate available and understand when the interest is paid on your balance. Is it calculated monthly, annually or at maturity – i.e. at the end of the term?

2. How long the term is. Is there a limit on how long you can invest in the term deposit? Do the interest rates change depending on the length of the term?

3. How much you need. What’s the minimum opening balance you need to invest, and does the interest rate change the more you put into your term deposit?

4. What the fees are. Are there any set-up or account-keeping fees for the term deposit? And if you have to get your money out early, what is the penalty?

Consider your options

Figuring out what your short and long-term savings goals are is the first step before taking out any investments – and you may also want to chat to a financial planner to determine whether a term deposit is right for your financial situation.

This article is intended to provide general information of an educational nature only. This information has been prepared without taking into account your objectives, financial situation or needs. Therefore, before acting on this information, you should consider its appropriateness having regard to these matters and the product terms and conditions. Terms, conditions, fees, charges and credit criteria apply. Information in this article is current as at the date of publication.

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