What is a term deposit?
A term deposit is very similar to a savings account, in that you deposit your money with a bank and keep it there for a period of time in order for it to accrue interest. The difference is that with a term deposit, your money is held for a specified period of time. Frequently, the rate of interest you receive increases with the length of the time you agree to deposit your money for.
Similar to a savings account, the attractiveness of a term deposit is that it is one of the lowest risk ways to grow your original deposit into a greater sum. There is no simple method to withdraw money from a term deposit, which is the major distinction between a term deposit and a savings account. Once you have locked your funds in the account, they must remain there until the end of the defined term. If you choose to remove your funds prior to the end of the term, you will be subject to a costly fee.
Whilst this limits your options, it also eliminates the temptation to deviate from your investment strategy and access your assets. Additionally, you won’t need to worry about continuing to fulfil requirements, such making consistent deposits to keep receiving a higher interest rate, because a term deposit’s specifics are planned out in advance. Therefore, you can simply estimate how much interest you may make and plan your budget appropriately.
The period chosen, the amount deposited, and whether interest is paid during the term or at maturity are just a few of the variables that affect the amount of income a term deposit earns.
What happens at the end of the term?
When your term deposit reaches maturity, you can choose to reinvest it into a new term deposit, reinvest a different amount, or have the money deposited back to you.