Term Deposits

Term Deposits
A term deposit involves depositing an amount of money with
a financial institution and making an undertaking not to
make a withdrawal for a specified period in time. This time
period or term is normally anywhere between 3 months and 5
years. Once the term expires, you can choose to either
withdraw the money and the interest you have earned, or to
make a redeposit. Generally speaking, the longer the term,
the greater the returns on the money deposited.

For the Australian consumer, it is unfortunate that term
deposit plans have not been rated by Cannex as yet. This
certainly makes identifying the top term deposit plans more
difficult than if the rating had already been done. To help
you along your way, here are a few things you may want to
bear in mind when researching and comparing term deposit
plans.

Assess your future financial needs before committing to a
term deposit

Before you enter into a term deposit, you will need to know
how much to deposit and how long you want the term to be.
When making this decision, be sure to take a good hard look
at the foreseeable future, to plan your cash flows
carefully and to consider any longer term contingencies
that may result in your having to prematurely end the term
deposit agreement. Only deposit money you are fairly
certain you will not need for the term of the deposit.

Interest rate cycles influence term deposit viability
Interest rates are cyclical. At times they are at a high
and at other times, low. Make a point of understanding
where the interest rates are at before entering into a term
deposit. This is especially valid if you opt for terms two
years and longer. At present, the Australian interest rates
are fairly high and you may stand to benefit from being
locked in at this higher rate over the term of the deposit
- more so if the interest rate cycle takes a downward turn.

Choose the best banking institution for your term deposit

Shop around. When you evaluate the different term deposit
plans offered, be sure to consider the following:

o Minimum amount - most banking institutions have a minimum
amount that has to be deposited when opening a term deposit
account.

o Interest rate - These differ greatly between banks. Also
check whether the rate is variable or fixed.

o Account fee - Some institutions waive account fees. Make
a point of understanding hidden fees and charges.

o Minimum term - make sure that the bank's minimum term
matches the term you require.

o Penalty fee - Early withdrawal generally results in a
penalty. Check what the maximum penalty will be if you are
forced to make a withdrawal before the end of the term.

o Renewal and Withdrawal window - In the fine print, you
should look out for the automatic renewal clause. This
clause generally details that should you not withdraw your
money within a certain time frame after term deposit
expiry, your money will be re-deposited.

Finally, do not hesitate negotiating for better interest
rates and better terms. There is a very real chance that
you will find the banks fairly ready to compromise in order
to secure your term deposit business.

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Richard Greenwood is founder of
http://www.high-interest-saving-account.com.au . The site
allows users to compare high interest online saving
accounts & term deposits reviewing features such as
interest rates, minimum deposit and fees.