Five benefits of term deposits in 2021
Are you happy with your savings efforts? Do you tend to dip into your accounts for impulse splurges?
If you’re aged 40-55 and have less than $34,000 in savings, or aged 56-74 with less than $40,000 stashed away, then according to a recent Finder report, your savings are sitting below the Australian average. If you need a boost, read on for one way that could get you greater returns on your hard-earned money.
At Woolworths Team Bank, we want to help make sure you aren’t missing out on making your money grow faster. We will always encourage you to be one step ahead to understand the current savings market, so today we are looking at whether a Term Deposit is a possible savings solution for your own personal situation.
What actually is a term deposit?
A term deposit is an investment of cash placed with a financial institution for a fixed period of time, known as the term (usually between one month and five years), with a fixed interest rate for your return at the end of the term.
One of the biggest differences between term deposits and savings accounts is the fact that you cannot access your cash if it’s in a term deposit, until that term has expired.
If you’re more of a spender than a saver, this can be a great way to lock your money away so that you can’t access it while it grows in value for you.
What are the five main benefits of investing your money in term deposits in 2021?
1. Term deposits offer financial certainty and low risk
A term deposit locks in your interest rate for a set period of time so you know exactly how much interest you will be earning and what amount you will be receiving at maturity. Even if the RBA cut the cash rate, your term deposit rate would stay the same. It’s safe, it’s certain, and you know what you’re going to get. There’s not many times in life you can say that!
2. Term deposits are backed by the government guarantee
Since the introduction of the Banking Act 1945, deposits with authorised deposit-taking institutions (ADIs) have benefited from high levels of regulatory protection. This protection was strengthened even further with the introduction of the government deposit guarantee in 2018, called the Financial Claims Scheme. This made term deposits virtually risk-free because deposit-holders are backed to the value of $250,000 per account holder per ADI. Essentially, it’s assurance that the government will reimburse up to $250,000 to account holders in the event that institution were to go under.
No other investment options (such as investment bonds or shares for example) are backed with this guarantee, so there is an increased level of risk involved when you invest your money elsewhere.
3. Term deposit rates can outperform savings rates
If the last year has shown us anything, it’s that life is unpredictable. So it is always worth keeping an eye out for changes in the market as some providers go against the grain and increase interest rates even when the RBA cuts the cash rate.
At Woolworths Team Bank, our current term deposit rates as of July 2021 are outperforming our savings account rates, so it’s always worth considering if you want to optimise the opportunity and use this rate for as long as you can to keep more money in your pocket, especially if you already have a savings account with us. It may suit you to redirect your funds into a term deposit account for greater stability.
4. Term deposits are low maintenance
Unlike some financial products, term deposits are simple to understand and easy to set up.
Once you’ve locked in your rate and length of term, there’s nothing to worry about until it’s due to expire (or ‘mature’ as it will be written in the product’s terms and conditions). Even then, all you need to do is decide if you want to renew another term (with or without a top-up of funds), or withdraw your cash partially or in full.
It really is a great out of sight, out of mind savings plan that lets you sit back and relax, knowing that you don’t need to do a thing to earn that interest.
5. Term deposits can help curb bad spending habits!
If you are a bit of an impulse spender, a term deposit can really help take control of your savings goals! Once your money is in a term deposit, penalties can apply for taking it out early, so it can actually help to curb random purchases and stop overspending. Taking control of your budget is the first step to being able to set savings goals!
How to decide whether a term deposit is right for you
With all the options available to stash your cash, it can be a challenge to know which one is best for your circumstances. There is no hard and fast rule for savings or investment options, but you can certainly ask yourself some quality questions to help you arrive at a confident decision.
Here are some things to think about when it comes to term deposits.
- The amount of money you have: Do you have access to other funds in an emergency or for unexpected bills? If you see a likelihood that you may need to make withdrawals from that lump sum any time soon, it might be better off in a savings account, or at least a short term deposit of a few months rather than a few years. If you’re happy not to touch it, then a term deposit might just be what you need for a boost to your savings.
- Your personal saving goals: Are you saving for a car? Or a house deposit? Or wanting a nest egg for your kids’ future education? Your personal savings goal will not only affect whether you opt for a savings account or term deposit, but also what kind of term deposit might be best for you.
- Your spending habits: If you’re not great at saving and locking your money away, a term deposit could be just the thing to help you stop that unnecessary spending. If you can’t access it, you can’t spend it! What’s more, your spending habits may change naturally, which can have a domino effect on your overall financial future.
Remember that as a team member in the Woolworths Group of companies, you have access to great (and exclusive!) savings and term deposit options with Woolworths Team Bank.
We are proud to offer competitive term deposit rates and will ask you a series of questions to help you find a solution for your financial needs.
Make sure you are making the most of your hard-earned money by speaking to one of our friendly and knowledgeable team members today.
General Advice Warning
This advice has been prepared without taking into account your objectives, financial situation or needs. Please consider the appropriateness of the advice in light of your own objectives, financial situation or needs, before you follow the advice.