5 year term deposits, your questions answered
If you’ve got a rainy day fund or some money that’s been sitting idly in a low interest account, a 5 year term deposit could be just the thing you need to amp up your hard earned savings.
So if you’re looking for a reliable place to stash your money to earn bumper interest, but aren’t sure how it works, read these frequently asked questions letting you in on what you need to know about 5 year term deposits:
Why invest in a 5 year term deposit?Everyone should have a long term savings plan in place, because life's big milestones - buying a house, having children, starting a business - are all so much easier when you’ve been saving for a while. There are plenty of good reasons why a five year term deposit might fit into your plan, including:
- Saving for your child’s education. Kids are expensive- really expensive. If you’re sending your kids to a private school, or want to pitch in for tuition fees, you’ll have to save up. A 5 year term deposit is good incentive to leave the money alone while earning interest on it at the same time.
- Boosting your home loan deposit amount. Looking for a home can take a while, and if you’re in no rush - or you started planning early - storing your deposit in a 5 year term deposit can boost your upfront payment, which can mean scoring better interest rates on your mortgage, or skipping out on added costs like Lender’s Mortgage Insurance.
- Adding a little extra on retirement savings. If you’re close to retirement and have a few bucks under your belt, a 5 year term deposit is a reliable way to grow your nest egg until your day of freedom comes!
Having said that, five years is a long time, and if locking away your money for that long scares you, a long term deposit might not be right for you. Instead, check out shorter terms like 1 month term deposits or 2 year term deposits.
How much should I put in a 5 year term deposit?
It’s simple, the more you put into a 5 year term deposit, the more you’ll get in return. Most banks have a minimum amount you can invest, which can vary from around $1,000 to $25,000. Generally speaking though, long term deposits, like five year terms, come with some of the highest interest rates around, so you should be able to get a decent return on your cash.
For example, if you’re putting $50,000 away for five years with an interest rate of 3%, you’ll earn $7,500 in interest alone. If you’re saving for retirement, that’s enough to fund a luxury cruise (or two!).
What are the pros and cons of a 5 year term deposit?Long term deposits can be a blessing, but can also be a curse if you’re not careful. Here are some of the major pros and cons of 5 year term deposits.
- Pros. A high interest rate (in comparison to savings account and shorter term deposits) is one of the biggest benefits of a 5 year term deposit, and in combination with a long term, you could earn thousands of dollars in interest. Another advantage is that you’ll be deterred from touching the money, making saving a lot simpler.
- Cons. Five years is a long time, and you might need your money back faster than you had anticipated due to an emergency. If you do have to withdraw early, you might have to pay break fees, and your interest will be reduced. Another weakness is that you could potentially be automatically rolled over into another five year period with a low interest rate if you’re not paying attention to the maturity date.
Can I take money out of my 5 year term deposit early?
Yes, but it won’t be without penalty. You may have to pay break fees for withdrawing from your term deposit early, and you’ll lose a percentage of your interest as well.
It’s good to keep in mind that some lenders will ask for notice ahead of your withdrawal (normally around 31 days), so there may be a delay in getting your funds back out again. Term deposits are a great place for your long term savings, but it pays to have a seperate emergency fund that you can access more easily, to avoid having to make early withdrawals.
Do I have to wait until my 5 year term deposit matures to collect my interest?
One of the great things about 5 year term deposits is that they offer higher interest rates than their shorter term counterparts. That being said, you don’t have to wait until your 5 year term deposit matures to collect interest on it unless you choose so.
It’s quite normal to collect interest annually on 5 year term deposits, but some lenders offer monthly and bi-annual interest payments as well, you’ll have to double check and see what conditions apply to your deposit.
Where can I find a great rate on a 5 year term deposit?
With so many lenders offering 5 year term deposits, you could find yourself struggling to compare them to find the highest rate possible. Thankfully, Mozo’s 5 year term deposit hub makes this easy by putting different offers side-by-side so you can compare features such as interest rates, minimum deposits and rollover conditions with ease.
And if you want an idea of how much you’ll earn in interest, check out Mozo’s term deposit calculator, too.