Are Term Deposits worth it?

Term deposit investments are a great way for Kiwis like you to secure your savings, lock in a great rate, and earn high interest. But should you really set your money aside just to earn high interest? And is it a worthwhile investment for you, whether you’re saving for a rainy day or retirement?

If you find you’re still on the fence having read up on how they work and when you can expect a return on your investment, then consider these other great benefits of a term deposit that make them more than worthwhile for Kiwis just like you.

Wait, what is a Term Deposit again?

Safer than shares or stocks, and often earning a higher rate than other savings accounts, a term deposit sees you locking your money away at a fixed rate, and for a fixed term, which usually fall into one of two categories:

  • Short term deposits - up to 12 months or less.
  • Long term deposits - anywhere up to 5 years.

Any interest earned on a short term deposit is usually paid out at the end of the term, while long term deposits tend to pay out quarterly or annually into an account of your choosing. Once this term is up, you’ll then be given the option to either reinvest your funds - plus interest earned - into a new term deposit, or have it deposited into your account in full.

Still on the fence? Consider these 3 benefits of a Term Deposit

1. They’re a safe investment

Unlike shares, stocks, or other riskier investment options, a term deposit is one of the safest ways you can invest your money. In fact, that’s part of the appeal. You don’t have to worry about playing the market, or cashing in on your investment. You simply select a term, lock in a great rate with a guaranteed return, and sit back as your money does the work for you.

2. They earn a higher interest rate

Even the highest rate savings accounts can’t compare to a term deposit investment when it comes to interest rates. An Online Saver account, for example, offers up to 2.80% p.a., while a Success Saver account can hit as high as 2.00% p.a. But both of these are lower than a term deposit, which offers a rate as high as 4.30% p.a.

This doesn’t automatically make a savings accounts a bad option. Whether a savings account or a term deposit is best for you depends on how much access you need to your money, how long you’d like to lock it away, and what you’re saving for. But for those looking to save for the long-term and earn the highest rate, a term deposit is a great choice.

3. They offer a guaranteed return

When comparing interest rates of savings accounts and term deposits, it’s important to remember that while the rates may be similar, the type of interest you earn is different. Savings accounts offer what is called a Variable Rate, which means the interest you earn fluctuates depending on various economic factors, the national rate, and your bank or credit union’s going rate, which is subject to change.

A term deposit, on the other hand, offers a Fixed Rate. That is, once you’ve locked in a rate, it will stay the same for the life of the term. There’s no need to keep an eye on the national rate, or bank on a return that might not eventuate. With a Term Deposit your return is guaranteed the moment you transfer the funds.