Nowadays there are so many investment products out there, from stocks and shares, to hedge or mutual funds and other alternative investments, and while it’s true that most people are really keen to make their money grow, it is certainly not true that most people are happy to take on the high risk associated with most forms of investment.

Enter the term deposit. Not only will you need a smaller amount of money to invest in a term deposit than say, stocks and shares, but this type of investment is also considered much safer. Best of all is that they you will get higher returns than savings accounts but with the same level of risk.

Why do term deposits offer more interest, you ask?

Simple. Banks are happy to pay more interest because they know that your money will remain in their hands for a fixed period – hence the name “term” deposit. This means that your money will be kept in the account for a fixed term enabling the bank to better manage its capital percentages. And, worst case scenario, should you be forced to withdraw some of the money before the term has been completed, the bank will simply charge you an early withdrawal fee for not complying with the previously agreed upon terms and conditions associated with the investment.

How long do you need to invest your money with a term deposit?

There are a variety of term deposit products on the market, but you can generally opt for one of the following timeframes:

  • 1 month
  • 6 months
  • 12 months
  • 60 months

What we love about term deposits:

  • Hardly any risk of losing your money
  • You earn a higher rate of return than you would have if you left your money in a transactions account like a savings account
  • The interest rate does not change over the period that you have invested your money

What we loath about term deposits:

  • If you need to withdraw your money before your term deposit investment is finished, you can expect to pay hefty withdrawal fees or fines
  • If your investment matures and you decide to simply let it roll over into another term, you are likely to get less favourable returns
  • This type of investment offers very little flexibility

Term deposit rates vary, so it will be worth your while to shop around for the best return on investment with the most flexibility.  While ideally you want to leave your money in such an account for as long as possible, the reality is that life happens and you want to be able to access your savings should you need to.