Tips for investing in term deposits
7 August 2009
By Tim Hewson
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
A flexible range of terms from 1 month to 5 years so you can easily find a term that suits 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
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.
Check the terms and onditions. 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.
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.
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
RaboPlus provides information on using terms deposits as part of your investment strategy, along with a full product range including the option of releasing interest during the term.
Important note: Before making any financial or strategic decision you should obtain professional advice which takes into account your personal circumstances and objectives. This article is not professional advice and does not take into account your personal circumstances or objectives.
The views and opinions expressed in this article do not necessarily represent the views and opinions of Rabobank Australia Limited. The persons involved in its preparation and distribution and their related persons disclaim all liability for any loss or damage suffered due to the use or otherwise of the information.
