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A long-term deposit can be anywhere from 12 months to five years. This means you'd need to lock your deposit away for this length of time, and you'll earn a fixed interest rate on your investment that will be locked in too. Longer-term deposit lengths often offer more competitive rates than terms of less than 12 months, but it could also be more of an inconvenience to lock your money away for more time. It could be a good option for you if you know you won't need money in the short term.
A long-term deposit may be right for you if:
There are things you should avoid to ensure you are getting the most benefit from your long term deposit account.
Your first decision when comparing term deposit accounts is to decide how long you want the term to be. Generally the longer the term, the better the interest rate, however, this isn't always the case. Once you have an idea of how long you need to meet your savings goal, you should begin comparing available term deposits between the different banks, asking the following questions:
Long term deposits can offer different methods for receiving your interest, ranging from monthly, quarterly or yearly. Some accounts only pay interest when the account reaches maturity, however if this is the case, you'll lose the benefit of compound interest.
You should be able to find a number of banks that charge minimal to no fees for their term deposit products. You should carefully research these fees before making your decision, and try to avoid any lenders that charge for early withdrawals (you never know if you will need to withdraw the money in an emergency situation).
This is arguably the most important feature, and one that can differ dramatically between different lenders. Be sure to choose an account with a competitive interest rate by market standards, as this will make a significant difference to your balance over a few years.
Unlike a savings account, you cannot open a term deposit with only a few hundred dollars. At minimum you will find accounts that allow an initial deposit of $1,000, but most will expect more. Make sure you're comfortable with the amount required, and leave enough money available in your savings account for living expenses and emergencies.
Serina Bird is a proud frugalista who has amassed a multi-million dollar portfolio through frugal living and investing. She is the author of several books, including How To Pay Your Mortgage Off in 10 Years, The Joyful Frugalista and The Joyful Startup Guide, and host of The Joyful Frugalista podcast.
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If I were to set up a trust account for a grandchild would a term deposit be better?
Hi Ginny,
Thanks for your inquiry.
It’s great to know that you are looking out for your grandchild. There are 2 types of accounts you can review for your grandchild’s trust account. A savings account and a term deposit. A high-interest savings account offers some of the best interest rates around allowing you to grow your balance as quickly as possible. Some even allow you to earn bonus interest if you satisfy specific conditions, such as depositing a minimum amount into the account each month.
Meanwhile, term deposits provide the security and consistency of guaranteed returns. These accounts let you lock in a fixed interest rate for a prearranged time period, for example, one or two years. This means you will not be affected by any interest rate drops that occur, but you won’t be able to enjoy the benefits of any rate rises being applied to your deposit.
As a friendly reminder, review the eligibility criteria and read up on the terms and conditions of the account before committing to the product. Feel free to reach out to the bank if you need any clarifications.
Best,
Nikki
If I invest 30000 into a term deposit of say 2 years, am I able to add extra to that before the term is up?
Hi Andy,
Thank you for your inquiry.
Few things regarding your concern.
Generally, the bank may roll the account into a new term deposit if you don’t let them know that you will be making your withdrawal at maturity. Before choosing to roll over the account, make sure you shop around and compare other providers rates again, as these may now be more competitive than what you’re currently earning.
Cheers,
Harold