Term Deposits

You can use term deposits in several ways to achieve your overall investment strategy and make the most of your portfolio.

The Australian Securities and Investments Commission's (ASIC's) website FIDO provides investors with an online guide on how to make the most of your term deposits. Visit the Australian Prudential Regulation Authority for a list of authorised deposit taking institutions (ADIs).

With all term deposit strategies, keeping your current and future cash needs in mind is important. With RaboDirect term deposits of one year or more, you can choose when your interest is paid. This gives you regular, guaranteed cash flow while you’re still earning higher longer term interest rates.

Our income example

Investing $100000 in a RaboDirect five year term deposit and opting for monthly interest payments could earn you an estimated $579.17 per month at an interest rate of 6.31% p.a.

Knowing you have this regular amount coming in enables you to budget and plan. You can use to pay a regular bill; reinvest it or use it to supplement other income.

Use our calculator to work out your interest payments based on your nominated principal amount, term and interest payment option.

• Calculate your return

In a three year ladder strategy, you invest $75000 in three equal portions into three different term deposits: $25000 into a three-year term, $25000 into a two-year term, and $25000 into a one-year term. After the first year, the first $25000 term deposit will mature, while the remaining two $25000 investments will each have a year less on their terms to maturity.

You then place the funds from the first matured term deposit into a new three-year term deposit. Using this strategy, each year a term deposit will mature and be reinvested in another three-year term deposit. As a result, you have the chance to reap the benefit of higher interest rates in the longer-term deposits; without having to lock your entire investment away into one term and one rate.

If the one year maturity term is too long for your needs, you can arrange to ‘ladder’ your term deposits every six months or even quarterly or monthly. The same principle then applies: as each term deposit matures you invest for another term, and so on.

Benefits of laddering your term deposits:

• Reduces impact of interest rate fluctuations
• Helps to minimise inflation risk
• Encourages long term and regular savings habits
• Creates liquidity
• Allows you to invest in more attractive, long-term term deposits
• Allows you to naturally take advantage of moves in the yield curve
• Delivers regular income and steady returns
• Helps avoid early termination penalties
• Lowers the risk of holding a single investment for a longer period of time

In a five-year bullet strategy, you invest a portion of $75000 in a five-year term deposit, leaving the balance in a high interest savings account. Each month, as rates fluctuate, you can choose the best rate to invest in with the remainder of the $75000, until the entire $75000 is invested. You choose each investment to mature at around the same time as the first one.

Benefits of a bullet strategy:

• Allows you to invest in more attractive, long-term term deposits
• Allows you to take advantage of increasing interest rates during an upswing
• Helps plan savings that are driven by time goals
• Encourages long term and regular savings habits
• Keeps your money locked up until you really need it for that big purchase
• Lowers the risk of holding a single investment for a longer period of time