If you’re someone who can’t resist temptation – like eating a pack of Tim Tams in one sitting – opening a term deposit could be a smart savings strategy.
When you open a term deposit, you lock away an amount of money at a fixed rate for an agreed length of time (AKA the ‘term’). This money cannot be touched or accessed until the term is over. So, if you can’t resist a sale, a term deposit can stop you from spending your savings.
If you prefer certainty and guaranteed growth, opening a term deposit could be for you. Here’s why:
1. A term deposit is low risk.
A term deposit locks in a fixed interest rate for a fixed term. So, if market interest rates go down, your interest rate won’t be affected. A fixed rate offers great peace of mind for cautious and first-time savers.
2. Term deposits reduce temptation.
You see online that there are cheap airfares to Bali. And without hesitation, you dip into your savings to pay for a spontaneous holiday. If this sounds like you, a term deposit could protect your savings because you can’t access the funds without giving 31 days’ notice. In some cases, your interest rate may be lowered, and some banks might even charge a penalty fee for an early exit.
3. Term deposits are low maintenance.
Term deposits are the epitome of ‘set and forget’ savings. As soon as you choose your term length, you don’t need to do a thing. It’s a great option for those who don’t want to lift a finger or stress about meeting bonus interest criteria.
4. You choose the term that’s right for your savings goal.
We all have different savings goals – some of us may be saving for a holiday while others are saving for a house deposit or renovation. By choosing the length of time your money is invested in a term deposit (1 month to 5 years), you can plan for your future with certainty.
To find the right term and return for you, try
ME’s term deposit calculator to see how your savings can grow.
5. Term deposits offer fee-free interest.
There are no monthly or annual fees, so it’s easier to grow your money. In short, less fees means more savings. Term deposits work by securing your money away for an agreed interest rate, so if you don’t mind the restrictions, your savings can grow for very little effort. Winning!
So, is a term deposit right for you?
Although safe and virtually risk-free, term deposits aren’t for everyone. Your savings will be locked in a virtual vault – so you can’t withdraw your savings without requesting they be ‘released’.
If you need to access your savings, you’ll need to give notice for an early withdrawal (at ME it’s 31 days), unless in hardship, and your interest rate will be reduced for that term.
Also, term deposits can’t earn you bonus interest because your rate is fixed, and your money is locked away. (Bonus interest is when you’re awarded an additional interest rate on top of the base rate.)
On the flip side,
earning bonus interest often comes with a few conditions (such as making monthly deposits with no withdrawals) whereas a term deposit requires you to do nothing.
Other things to consider.
If you’re someone who likes to
put away savings every payday (go, you!), a term deposit may not suit you. You can only deposit money into your term deposit at the end of the term. And if you’re someone who suffers from FOMO, term deposits come with fixed rates – so if market rates go up, you’ll miss out.
Term deposits are ideal for long-term savers and for people who want to stash away lump sums of money, such as an inheritance or bonus from work. They also require an initial minimum deposit (ME’s Term Deposit is $5,000 minimum) so you’ll need to have some cash to get started.
Come to terms with the right savings strategy for you.
Term deposits are a low risk saving solution that require very little maintenance. They’re ideal for people who find themselves dipping into their savings more than they’d like, and for those who don’t need immediate access to their savings.
Start on good terms.
Open a ME Term deposit and see how your savings can grow with competitive rates.
Try ME's term deposits
This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.