Term Deposits
What is a term deposit
A term deposit is a fixed-term investment that includes the deposit of money into an account at a financial institution. Term deposit investments usually carry short-term maturities ranging from one month to a few years and will have varying levels of required minimum deposits.
The investor must understand when buying a term deposit that they can withdraw their funds only after the term ends. In some cases, the account holder may allow the investor early termination—or withdrawal—if they give several days notification. Also, there will be a penalty assessed for early termination.
Risks of term deposits
While term deposits can provide certainty and security over the long term, the amount you earn from term deposits tends to be lower than other investment options such as shares. There is no growth in the capital you invest in a term deposit meaning it may not keep pace with inflation. When considering term deposits, think about your long-term investment goals and how you could use a term deposit to complement a diversified portfolio.
It is also important to keep in mind that term deposits generally cannot be broken, which means you cannot access the money you invest in a term deposit, or the interest you earn from it, until it matures.
What are the benefits of term deposits?
- With term deposits, the return is agreed with the financial institution at the time of purchase, which means that you will know the interest you will earn before you deposit your money, based on the amount and the term
- Unlike the case with variable investments, term deposits offer a fixed remuneration throughout the life of the product Investment guaranteed by the Deposit Guarantee Fund. Term deposits offer a lower risk than other savings products and are also protected by the Deposit Guarantee Fund
- You can purchase a deposit very easily and in a matter of minutes. Most banks let you purchase them online and since they are simple products you don't need an extensive knowledge of investing
- You decide how long you want to maintain the deposit. The conditions of a term deposit cannot be changed: as a product with a specific duration, banks cannot change any of the conditions agreed at the time of purchase