6 month term deposits

A 6-month term deposit is a short-term savings investment with a fixed interest rate. It's one of many term options which range from 1 month to 5 years. This option could be good if you’re looking for short-term growth, are hesitant about longer commitments, or are hoping to benefit from potential near-future interest rate increases.

Pros and cons of a 6 month term deposit

While 6 month term deposits come with some benefits, it’s also important to weigh these against the negatives. Some of the pros and cons of 6 month term deposits are as follows:

Pros

• Secure investment: The Australian Government guarantees term deposits up to $250,000 with authorised deposit-taking institutions in the unlikely case that the provider collapses.

• Guaranteed return: Term deposits come with fixed interest rates, so you know exactly what you’re getting. Not only that, you’ll also be able to calculate exactly how much you’ll earn by the end of the 6 month term.

• Interest rate decreases: Since these rates are locked in, you’ll only be affected by cuts your provider makes  

• Little work required: A 6 month term deposit is a set and forget it situation, unlike some high interest savings accounts which may require meeting conditions to get your interest rate.

• Option to re-invest: You can re-invest at the end of a 6 month term, which means you could benefit from any short term interest rate rises if they occur. With a long-term deposit, you’re locked into the same fixed rate for longer.

Cons

• Lack of flexibility: If you have to withdraw your funds before your term deposit matures, you’ll be subject to penalties like an early withdrawal fee (depending on the provider). 

• Can’t add to your deposit: Once you’ve put your savings into a term deposit, you cannot add to the funds until the term has matured. Once your term deposit has matured, you’ll need to lock into a new term if you want to re-invest.

• Interest rate increases: If interest rates increase during the 6 month period of your term deposit, you won’t benefit as your interest rate is locked in.

Something to keep in mind: Automatic rollover

Many providers have an automatic rollover feature included, meaning that the account will take the deposit and interest into another 6 month term deposit. These can be good as they often come with loyalty bonuses and mean that your cash compounds faster.

However, keep in mind that it may automatically rollover into a lower rate, so make sure you compare term deposits prior to the end of the term.

What features to look for in a term deposit

Keep an eye out for features like:

• Interest rate: Term deposits have a fixed interest rate which you lock in at the start of your investment, and the higher the interest rate, the better your return will be. You should also consider when interest is paid on your term deposit. If it’s paid monthly, you’ll earn compound interest, whereas if it’s paid at maturity, you’ll just earn interest on your initial deposit.

• Investment term: Term deposits are investments that are restricted by a set amount of time, and the term can range from 1 month up to 5 years. Before putting your savings into a term deposit, compare the interest rate over various investment terms. 

• Fees: Most term deposits don’t come with set up fees, but expenses can arise if you need to terminate your term deposit early. You may need to pay a withdrawal fee if you want to access your money before your term deposit has matured, or you may forfeit any interest you had accrued.

• Your projected earnings: You can get an idea of just how much interest you’ll earn before locking your money away in a term deposit by using Mozo’s term deposit calculator.

Comparing term deposit and savings account options