There is no better feeling than seeing your savings going up when you check your bank balance. One of the best ways of making sure that happens is to use a term deposit account for increased long-term savings with minimum risk. Unlike other types of bank accounts, term deposit rates tend to have a higher and fixed interest rate, allowing you to save confidently with specific targets.
However, it’s important to understand the ins and outs of term deposits before you can begin earning. Different financial institutions offer a variety of different terms and interest rates. Some providers will require you to provide notice if you want to withdraw before your account matures while others will charge a penalty fee. The more you can understand about term deposits, the better a position you will be in to choose the right account for your financial goals
Continue reading to learn more about term deposit accounts and how you can use these low-risk accounts to increase your savings.
What is A Term Deposit?
A term deposit is a fixed amount of cash that you deposit with a financial institution for an agreed period. During that period, you are not allowed to make any withdrawals. Moreover, if you have to withdraw your term deposit, then you have to forgo a good chunk of the interest you could have earned. In most cases, you will also have to give a month’s notice before you make the withdrawal.
The term usually lasts from 1 month to 5 years, and the customer is allowed to renew the term after the maturity period. There is usually a grace period after maturity, during which the customer can withdraw their term deposit without any fines or giving notice.
When you open a fixed deposit account, you get an option to choose when you would like to receive your interest. You may choose to receive it monthly, at maturity, monthly, quarterly, half-yearly, or annually. Generally, you will earn slightly more interest when you choose a longer payment period.
The rates are fixed when you sign up for the account and you will not be able to change them midway. However, after maturity, you will be free to withdraw your savings or renew your term deposit at a different rate. If you do not wish to continue saving, you may also choose to withdraw your savings and terminate the account.
The earnings you‘ll get from your term deposit will be reduced greatly if you choose to terminate the account before maturity. You should expect your term deposit interest to drop by as much as 90% to a minimum of 20%. If you want the best return on your investment, you need to wait until the term of your deposits expires before you request for a withdrawal.
The Interest Rate Is Guaranteed
One of the common features of other types of savings accounts is that the interest will vary with time. The bank can also choose to lower it or raise it without notice. That is not the case with the interest from a term deposit account, as the interest never changes even when the economy performs poorly.
Choosing the Maturity Period
You should keep in mind that you may need your term deposit if these funds are the only finances you have available for emergencies. In that case, you need to choose a short maturity period, and then choose to get your interest at maturity. That way you will not risk losing as much as 90% of your interest.
You Get More from Term Deposit than Any Other Savings Account
When you choose to save your money with a fixed term deposit, you get to enjoy the highest interest rates offered by your financial institution and the amount you are paid in interest is guaranteed. You can also rest easy, knowing that your savings will not be affected by changing and unstable economic times. If you wish to increase your saving before investing them in any other project, then a fixed deposit account is the best way to get started and move one step closer to your financial goals.