Choosing a Term Deposit Account

If you are looking for a good return on your savings, term deposit accounts are one of the best products out there. They offer higher interest rates than most savings accounts and you know exactly how much you will get back at the end of the term. However, once you sign the paperwork you are committed to that product, so it is essential to choose the right term deposit account for you.

Basically, a term deposit account is a savings account where you invest a certain amount of money for an agreed period of time. Though you sacrifice a lot of flexibility, term deposit accounts offer some of the best interest rates on the market.

In many ways, comparing term deposit accounts is simpler than comparing a lot of financial products. Term deposits pay a set interest rate over a certain amount of time so you can tell exactly how much the return on your investment will be, so it is easy to make direct comparisons between products in this regard. However, term deposit accounts can differ significantly in other ways. Here are some of the factors you should consider when you compare term deposits:

Minimum investment – Most products require a minimum investment of between $1,000 and $10,000, though some ask for a lot more. As a general rule, the higher the minimum investment the higher the interest rate.

Term of investment – Term deposit accounts usually require that you invest your money for between one and five years. Again, the longer the term of the contract, the higher the interest rate will be. This is not a flexible arrangement so you must be willing to leave your money untouched for the full term if you want to see the full return on your investment.

Break fee – If you do decide to withdraw some or all of your money before the end of the term you will be charged a break fee. This could be a percentage of the interest your investment has earned so far, it could be a flat fee, or it could be both. In general, you can expect to lose at least half of your returns if you withdraw early. You should also read the small print to see if there are any other fees and charges when comparing term deposit accounts.

Interest calculations – Different term deposit accounts calculate interest in different ways, which can make a difference to the returns you receive on your investment. Most term deposit accounts calculate interest once a year, but it does vary. For this reason, it is best to compare products on the basis of your final return, rather than the quoted interest rate.

These are the main factors to consider when comparing term deposit accounts. Of course, before you begin your comparison you will need to consider your own circumstances. For example, how much can you afford to invest and how long can you leave it invested? Once you know this, you can narrow your list of suitable products and begin to make direct comparisons.