You’ve done the hard work of saving and squirrelling away every spare dollar, decided a term deposit is the best place to park your money and now you can kick back and forget about it, right? Wrong!
A term deposit may be a low maintenance saving strategy, but that doesn’t mean you can just leave your hard earned savings to look after themselves. There are still some tricks you can keep up your sleeve to help you maximise the earning potential on your rainy day fund while it’s put away in a term deposit. And on the other side of the coin, there are some term deposit traps you should look out for as well.
Check them out:
Top term deposit tricks
Your main goal in opening a term deposit is probably either to earn a steady return, or to keep your stash safe. Or maybe you want to do both. Here are a few tips to get the most out of your term deposit.
- Create a budget. If you’re locking a chunk of your money away in a term deposit, you should first have a strategy to live without that money, which might mean:
- Have a separate emergency fund. This minimises the chance of having to withdraw early. A high interest savings account might be a good place to keep this extra stash.
- Tighten up your everyday budget. Not having access to that lump sum of money might mean you need to cut back on some of your more frivolous spending, and keep your accessible cash for really necessary costs, like rent or groceries.
- Keep track of your money. Your bank will contact you when your term deposit is about to reach maturity, but it’s also a good idea to set your own reminders. Plus, you’ll want to have a plan ready for what you’re going to do with the funds - if you delay deciding too long, you might accidentally find yourself locked into a rollover term.
- Choose the right term for you. Usually, a longer term will offer a better interest rate, but that won’t matter if you have to withdraw from your deposit a few months in. Pick a term that you’re confident you can stick to.
- Maximise your balance. The more money you put in upfront, generally the more interest you’ll get out. So check the nooks and crannies of your budget and plump up your initial deposit with any extra funds that are going unused.
- Stagger your term deposits. If you have multiple term deposits, try staggering the maturity dates so you’ll get your money back at different times. This can be a great strategy for retirees or people living off their savings because it’s almost like receiving a regular paycheck and can help you manage your budget by giving you gradual access to funds.
- Find the best interest rate before you lock in. A term deposit lasts for a fixed term, at a fixed rate, so whatever deal you choose, you’ll be stuck with it for a minimum of a month. That means it’s important to find the most competitive term deposit offer around, so you don’t waste any time with a subpar interest rate!
Common term deposit traps
Sometimes, the best offence is a good defence, so now that you know the tricks for making your term deposit work harder for you, let’s cover some of the common mistakes people make when using a term deposit as a savings strategy. These pitfalls will lower the amount of interest you earn, so don’t get tripped up!
- Early withdrawals. This is the number one trap when it comes to term deposits - and it can seriously damage how much interest you earn. When you withdraw early, not only will you pay penalty fees, but the bank can also reduce the amount of interest you’ll earn. So once you put your money away in the term deposit, it’s hands off until the maturity date!
- The 31 day notice period. It’s become more and more common for banks to require a 31 day notice period before you can make an early withdrawal on your term deposit. If you’re withdrawing because an emergency has cropped up, this could be a problem. Combat the notice period by having a different emergency fund in reserve, outside your term deposit.
- Rollover ‘deals’. If you forget to make arrangements for when your term deposit matures it may rollover into a low interest term. Once it does, you’ll be locked in for the length of that term and penalty fees will apply for withdrawals, the same as your original deal. With certain banks, your money can even be shifted into a ‘holding account’ where you won’t earn any interest at all.
- Sticking with your current bank because it’s easy. Accepting the term deposit on offer from your regular bank without comparing other options is a big mistake. It could mean missing out on lots of potential interest - especially if you bank with one of the major banks, which generally offer lower rates. Shop around before you choose somewhere to stash your cash, but remember to check that the bank will pay your term deposit interest into a savings account with your regular bank, as not all offers have this option - some will instead require you to have a savings account or bank account with the same bank for interest to be paid into.
- Interest rate envy. The grass is always greener on the other side. Realising that you’ve locked in a rate that’s not as good as it could have been is really disappointing and could cost you big in the long run. So make sure you compare interest rates and find the best deal around before locking in.
Handy term deposit tools
Does that seem like a lot of work? Well, luckily, we’re here to help, and we have a bunch of great tools to make getting hold of the best possible term deposit as easy as pie. Here’s what you can do:
- Stop by our customer review section for some first hand knowledge on what different banks’ term deposits are like.
- Take our term deposit search tool for a spin to find out which offers are best for your savings. All you have to do is plug in your deposit amount, desired term and location for personalised results.
- Crunch the numbers with our term deposit calculator to see how much your savings will be worth at the end of your term deposit.
Compare the range of term deposit offers available with our comparison tables.