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» Articles - Tips for investing in term deposits
Tips for investing in term deposits
Term deposits typically suit investors looking for safety, security and a guaranteed investment return. More importantly, investors want their investment returned to them at maturity, so term deposits are the ideal investment for investors wanting certainty.
Terms deposits are generally a defensive investment and most investors allocate to term deposits as part of their short-term cash and defensive portions of their investment portfolios to help reduce volatility, protect capital and also generate income.
Investors generally like to know that their capital is protected and that it will be returned to them at maturity, so if you are looking for better returns than those generally available on call and are prepared to lock up your investment for a period, then term deposits might make a nice addition to your short-term and cash portfolio.
Benefits of term deposits:
- Generally pay a higher return than cash.
- A fixed return for a fixed period.
- Certainty of knowing exactly how much interest you will earn at maturity.
- They are capital guaranteed.
- Have guaranteed returns and are much less risky than equities and property.
- Generally have low minimum investment of just $1,000.
- Terms from 1 month to 5 years to suit your savings goal.
- A range of interest payment options for longer-term term deposits.
- Automatic roll over and benefit of compounding interest.
- Interest can be paid directly to your primary savings account.
Tips for selecting the right term deposit:
1. Make sure you choose the right term. Review your need for liquidity to ensure that you do not need to break the term deposit early. Alternatively, invest a smaller amount or invest for a shorter term.
2. Check the terms and conditions. Make sure you are familiar with the conditions of the investment and also understand whether any early termination fees are payable and how much it might cost.
3. Understand how interest is calculated. Plan your cash flows and understand your future need for cash and liquidity. Make sure that the interest payment options you select are appropriate.
4. Check the credit rating of the institution offering the term deposit and make sure you are comfortable who you are investing with.
What to do next: Learn more about term deposits.
For more information, or to discuss your specific situation, please contact me directly.
Tim Hewson
Investment Manager - RaboPlus
Now that you have read this, what do you think? Do you have other ideas? Please share you views with other members (eg by blog or discussion form) and/or request professional member(s) to contact you directly.
