Everything you need to know about term deposits

If you’re looking for ways to earn interest on your savings, a term deposit is a popular way of doing so. You can earn a fixed rate of interest on your savings and know exactly what your money will earn. Wondering if a term deposit is right for you? Here’s everything you need to know about term deposits, including benefits and drawbacks, and how they differ from a traditional savings account.

What is a term deposit?

A term deposit pays a fixed rate of interest on your savings balance for a defined period of time, for example 12 months. That interest is usually paid as a lump sum upon maturity of your term deposit, but there are options that pay at different intervals. Term deposits allow you to access a guaranteed rate of interest on your cash in return for locking your money away for a set period of time. However, you can’t quickly access the money during the term or add to your balance over time.

What are the pros and cons of a term deposit?

Term deposits have upsides and downsides. These can vary depending on your personal financial circumstances, like how soon you need the money, and what kind of saver you are. Some aspects of a term deposit might be an upside for one person, and a downside to another.

Pros of a term deposit

• Term deposits allow you to lock away money you don’t need in the short term and earn a guaranteed return at the end.
• Term deposit rates may be higher than savings accounts.
• Your interest rate is guaranteed, so you don’t need to meet certain criteria to earn your interest rate. This differs from some high interest savings accounts that require you to make a certain number of transactions or increase your balance each month to keep earning the high rate of interest.
• Your money is set aside in the term deposit and can’t be accessed. This can help you better manage your finances and reduce temptation to spend your money.
• Your interest rate won’t change based on external factors like the economy.

Cons of a term deposit

• Money held in a term deposit can’t be accessed easily.
• If you need to access your money, you may have to pay an early withdrawal penalty fee, and the withdrawal may require a period of notice.
• You also can’t add to your balance during the term, so if you want to keep contributing to your savings, a term deposit might not be the best option for you.
• While your interest rate is guaranteed for the term you agree to, this also means you can’t take advantage of higher rates offered elsewhere until your term deposit matures.

Term deposit vs savings account

If you’ve got savings that you’d like to earn interest on, you might be wondering whether a term deposit is a better option than a savings account. Ultimately, it comes down to your own personal circumstances and goals.

If you might need to access your funds in the short term, or you want to keep adding to your balance over time, a savings account might be more suited to your needs. While you’ll need to explore the range of interest rates on offer and ensure you’re eligible for them, you’ll be able to add to or withdraw from your balance whenever you need to.

However, if you’ve got a lump sum of cash that you won’t need for several months or years and you want a set and forget, low-risk way to earn interest, a term deposit could be for you. You won’t need to meet any criteria to maintain your interest rate, and your return will be guaranteed for the term you agree to.

Want more flexibility?

Bendigo Gold offers the flexibility of additional deposits at any time and withdrawals of up to 25% of your original deposit if you need to.

Minimum deposit $2000, minimum term of 12 month and interest paid quarterly.

Find out more about term deposits.