7 things to consider when comparing term deposits

Investing in the right term deposit could be a secure way to build your savings.

However, all term deposits require you to lock your money away for a set period. That’s why it’s so important to choose the right term deposit for you.

Financial service providers offer a wide range of term deposit interest rates across various short- and long-term periods. When interest is paid and how it’s calculated will also affect your profits, as will any penalty fees that are charged if you need to access your money earlier than expected.

Here’s a list of what you should consider when comparing term deposits.

1. What is the interest rate?

Term deposit providers offer different interest rates for different pre-determined periods, or ‘tenures’, with short-term deposits usually having lower interest rates than longer-term deposits. Compare the rates offered by all providers to identify the best value interest rate versus term.

2. Is a short- or long-term deposit best for you?

Not all financial services companies offer term deposits for the same periods. Some providers focus predominantly on short-term deposits of 90 days, 180 days or one year, while others offer long-term deposits of up to five years. You’ll need to compare them all to ensure you get the term that best suits your investment strategy.

3. What are the minimum and maximum deposits?

Some providers require a minimum amount to open a term deposit account. These typically range from $1000 to $5000, but can be more or less. Also note that there may be a maximum deposit, which will vary depending on the account and provider.

4. When is interest paid?

Term deposits usually offer a range of different payment options. Depending on the product in question, you may be able to choose monthly, quarterly or annual interest payments. Alternatively, you could opt for a term deposit that is paid at maturity – that is, at the end of the term deposit’s pre-determined time period.

5. What are the penalty fees?

Some term deposits will apply a penalty fee if you need to access the funds before the account matures. Financial institutions calculate their penalty fees differently, so make sure you know how much your provider will charge you if you need to cash out of your term deposit early. It might be a good idea to weigh the penalty fees against the interest rate to identify the true value of the offer.

6. What are the general fees?

Most financial institutions don’t charge set-up or ongoing account fees on term deposits. However, it’s worth confirming any fee schedule with your short list of providers to avoid surprises. Any general fees charged will likely take a significant slice out of your profits and may affect your decision about which term deposit provides the best value.

7. Is compound interest offered?

Term deposits that offer compound interest may return significant benefits to investors. Compound interest is added to your term deposit on a regular basis, which increases its value – and the size of the next interest payment. This could potentially deliver higher profits than a term deposit with a single interest payment made at maturity.

Looking for a term deposit? InfoChoice allows you to search and compare term deposit offers, while providing useful information such as monthly account service fees and accessibility. You can also use our InfoChoice Term Deposit Calculator or Compound Interest Calculator to estimate how much interest you could earn.