Get the low-down on how a term deposit could come in handy for a range of life events.
4 minute read
It can sometimes seem to take all the willpower in the world to resist dipping into your savings, especially if you’ve been saving for a while and now have a good-looking balance. Resisting the urge to ‘treat yourself’ could seem like a big ask each time you see it when logging into Internet Banking.
By putting your savings into a term deposit, you could help put that urge to splurge out of reach, as by locking your money away for a set term, you won’t be able to access it until the term is up. However, it’s important to know when you’ll need to access your money, so you don’t lock it away for too long.
Perhaps it’s a tax return, or a bonus from work - from time-to-time life can surprise you and extra money could come your way. Of course, if you weren’t expecting it, chances are you won’t be prepared to know what to do with it.
With term deposits available for as short as 30 days, putting your money into a term deposit doesn’t have to mean locking your money away for the long haul. By putting your money into a term deposit, you can keep your money safe and earn a guaranteed rate of interest while you decide what it is you want to do.
The average time it takes to save for a home loan in Australia is 5.4 years, so it tends to be a longer-term commitment. By putting your savings into a term deposit, not only can you help resist the urge to dip into your savings, you could also opt for a longer term which in turn can give you access to a greater range of interest rates you can select from.
Some banks can also let you access your funds earlier without penalty if you’ll be taking out a home loan with them. You may need to provide evidence that you need those funds for the property purchase, so ask your bank about how they can help you.
There’s one thing for certain with kids – they’re expensive. There are several different reasons why you might need to start putting some money aside for your child – it might be their education - either school fees coming up or university fees further down the road. Or perhaps you want to be able to give them a hand getting into the property market and want to start putting aside some money, so they’ll have a home deposit for when they’re ready.
The advantage of using a term deposit to put away money for your child’s future is not only will you know exactly what the return on your money will be, you’ll also know your money is safe, as term deposits are a considered a safe investment. In fact, term deposits up to $250,000 are even guaranteed by the Australian government, so you’ll know the money put aside for your kids is safe.
Once you’ve retired it’s likely you’ll want to move away from more riskier asset classes and protect your money from market volatility; you’ll also likely be looking for means to create an income stream. With a term deposit it’s possible to create an income stream from the interest payments. How interest is paid varies depending on the term deposit, but as a rule of thumb interest on a term deposit can be paid monthly, quarterly, half-yearly, annually or at maturity. Keep in mind though that how the interest is paid will likely influence the interest rates available.
Knowing the differences between the two could help you understand how they can support you at different stages of your saving and investing journey.
A term deposit lets you lock away a lump sum for a set timeframe at a fixed interest rate, so you’ll know exactly what the return on your money will be.
This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness for the information to your own circumstances and, if necessary, seek appropriate professional advice.