What term deposit maturity means and what happens to your money when it occurs.
A term deposit offers a safe and secure way to invest your money and enjoy guaranteed returns. However, like any other type of financial product, it comes with a range of unique terminology and banking jargon attached – and one of the most commonly misunderstood terms is maturity.
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What is term deposit maturity?
When you open a term deposit, you can choose the length of time for which you want to invest your money. This is known as the term, and terms typically range from 1 to 60 months. Once you’ve deposited your money, it’s locked away for the entirety of the term you choose.
But when the term of your deposit comes to an end, this is when your term deposit reaches maturity. Once a deposit has matured, you can access the funds you initially invested as well as any interest that has been paid into the account.
What happens when my term deposit matures?
When a term deposit matures, your investment is complete and your account is officially closed. Access restrictions that apply during the term (see below) are lifted, allowing you to re-invest your money in another term deposit, invest it elsewhere, or simply to use it however you like.
Your bank will usually contact you in the weeks leading up to your term deposit maturity date to let you know the term is about to end and outline the options available for your investment.
There are several possible steps you can take when a term deposit reaches maturity. You can:
Take no action
The default option when you take no action is for your funds to be rolled over into a new deposit with the same term. The bank’s prevailing interest rate for your chosen term will apply to your new investment. While this can be a convenient way to continue building a bigger savings balance, the downside is that your bank’s prevailing interest rate may not be competitive with the rates on offer elsewhere. Investing your money for the same term may also not be suitable, so it’s usually a good idea to compare your options and consider choosing a new term and interest rate.
Choose a new term deposit
Now is the perfect time to shop around and consider your investment needs. If you want to open another term deposit, have a think about a suitable investment time frame for you. Then you can compare the interest rates on offer from your bank and other financial institutions.
Increase your investment
If opening a new term deposit, you may wish to top up your balance with extra funds. The more you invest, the greater your interest returns will be.
Withdraw some and invest the rest
You may want to withdraw some of the money to fund other purchases and investments, but invest the remainder in a new term deposit.
Spend it or invest it elsewhere
The final option is to take the money and run. Once a term deposit matures the money is yours and you are free to do whatever you like with it.
As there are so many options available, make sure you don’t rush into anything. Take the time to consider your options and make an informed decision about the best thing to do with your money.
Can I access the funds in my term deposit before maturity?
One of the key benefits of term deposits is that it’s quite difficult to access your funds before maturity. This removes the temptation to dip into your savings and spend the money that is meant to be set aside for something else.
However, while it is difficult to access your term deposit before maturity it’s not impossible, but there are terms and conditions attached. First, many banks will require you to provide written notice before you can withdraw your funds, and this notice typically has to be provided 31 days in advance. So if you want to access the money in your term deposit to meet urgent expenses, this restriction can cause problems.
Second, and perhaps more significant, is the fact that you will usually be charged with a fee and an interest rate penalty for withdrawing your funds early. Your bank will have a set formula for calculating how much to reduce the interest earned on your account, and in some cases you may actually have to repay some of the interest you have already been paid.
With this in mind, it’s important to think carefully about whether or not a term deposit is right for you before opening an account.
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