Term deposit features
So you’ve decided to lock your funds away in a term deposit to grow. Good for you! By this point, you probably already know what a term deposit is - a stable, long-term savings strategy that can help you maximise the size of your rainy day fund with minimal effort on your part.
But if you’re after a more detailed explanation of the features you might expect to find in a term deposit offer, then look no further. We’ve broken down the major features you should take into consideration, as well as the options for how and when your interest will be paid.
So check out the ins and outs of term deposit features below and find the right place to stash your cash!
Major features of a term deposit
Fixed interest rate
The first thing you’ll probably notice when choosing a term deposit is the interest rate. This lets you work out how much interest you’ll earn over the life of your term deposit, and the higher the interest rate, the more your savings will grow.
Unlike a savings account, a term deposit has a fixed rate, so market changes won’t affect your earnings. While this means you won’t be a victim of falling interest rates, it also means you won’t get to cash in on any rate rises - so make sure you shop around and get the best interest rate on offer before you commit to a term deposit.
The next thing to consider is how long you want to put your money away for. A term deposit lasts for a predetermined amount of time, usually one month, three months, six months, one year, two years, or five years, and sometimes even up to ten years.
Generally speaking, longer terms will carry higher interest rates, so you’ll earn more, but that’s not always the case, so make sure you compare the options on offer.
The important thing to remember about this fixed term, is that until it ends, you won’t be able to withdraw any money from your term deposit without paying hefty penalties. So make sure you choose a length of time that will suit your budget.
When your term deposit matures at the end of the fixed term, you can reclaim your money and stash it away in a savings account, or use it toward your next spending goal. Or, another option offered by some term deposit providers, is to immediately reinvest it in a new term deposit and continue earning interest. This is called a rollover term.
A rollover term might be a good idea if you don’t need the funds for anything straight away, and you found a term deposit to be a handy savings strategy. But remember, the interest rate offered on the rollover term may not be the best on the market anymore. So you should always compare rates again before agreeing to a rollover term - and if you aren’t being offered the best deal, shift your hard earned stash somewhere else!
As mentioned above, it's super important to choose a realistic fixed term for your term deposit, because if you have to withdraw funds early, there’ll be some hefty penalties involved. Usually, this includes an early withdrawal fee, plus reduced interest on your stash. If you think you’re likely to need to make withdrawals from your rainy day fund, you might be better off opting for a high interest savings account.
On the flip side - term deposits are generally free of any other fees and charges, like set up fees or ongoing service fees.
Where term deposits are concerned, banks tend to like round numbers - anything ending in three or more zeroes is a good bet. Different term deposit offers will have different minimum and maximum amounts you can deposit. Usually, the minimum is around $1,000, and the maximum might be as high as $5,000,000 or more.
What interest payment features should I look for in a term deposit?
Once you’ve secured a term deposit with a generous interest rate, the next step is to keep an eye on how and when you’ll receive interest. For a full rundown, check out our guide on term deposit rates, but here are the main points you need to be aware of:
Interest payment frequency
Basically, this is how often you’ll see the interest roll into your term deposit account. Some options that might be on offer include fortnightly, monthly, quarterly, annually or at maturity, but the most common options are annually for longer terms and at maturity for shorter terms.
Interest payment method
Nothing glamorous here - in the age of online banking, unless you opt for a rollover term, term deposit interest is more or less always paid out as a direct credit. Which makes the next point very important...
Interest payments between banks
If your usual bank is not so hot on its term deposit offerings you may want to look further afield for a spot to lock away a portion of your savings. But if you do, first make sure that this new bank is willing to pay your term deposit interest into a savings account at your usual bank.
Term deposit tips
Choose a long term if you can
The longer your money is put away, the longer it has to earn interest. Plus, more often than not, the longer the term you choose, the better the interest rate.
Put away as much as you can
Generally, the bigger the balance the more interest - just make sure you have enough left over in your bank account that you won’t want to withdraw funds early and incur penalty fees.
Have a separate emergency fund
If you wind up in a jam, would you be relying on the money going into your term deposit to get you out of it? This is the quickest way to find yourself paying early withdrawal fees, so it’s a good idea to have a separate emergency fund, and only put money in a term deposit if you definitely won’t need it any time soon.
Read some reviews
The facts and figures can only tell you so much. Find out what real life customers have to say about their term deposits in our customer reviews section.
Compare all your options
A term deposit is a long-term commitment, and with so many different offers out there you’d be crazy to settle for the first one you come across. Make sure you compare term deposits and find yourself the best deal before going ahead.
Compare with a savings account
Although a term deposit is a stable, low-risk way to earn interest on your savings pile, it may not always be the most competitive option. Sometimes, a good savings account might offer you a better interest rate, along with added withdrawal flexibility. Check out our savings account comparison and read our guide on term deposits vs savings accounts here.