What Is a Term Deposit?
If you’re interested in becoming financially independent, opening a term deposit account is one of the most useful things that you can do. Your money will grow by accruing interest, and no matter how the market fluctuates, the financial institution you’re dealing with will continue paying you that interest rate. A term portfolio at Move Bank can start with an investment of $5,000.
Term deposits with Move Bank mature anywhere from 3 to 24 months.
What Is a Term Deposit?
A term deposit is a type of investment that’s made for a set period of time. Instead of investing in a private company as you do when you buy stocks, however, you are letting a financial institution keep your money for a predetermined interval of time so that it can make investments. In exchange for this, the financial institution will pay you interest.
Term deposits are a dependable source of income that offer capital security. Even individuals who like to play the stock market often make term deposits part of their investment portfolios because term deposits are a predictable source of income growth.
Term Deposit Advantages
Term deposits typically pay considerably more interest than passbook savings, which can be withdrawn from at any time. The higher interest rate is a way to compensate you for the fact that you will not have quick access to these funds for the duration of the term. For that reason, it’s probably not advisable to invest your household’s emergency fund in a term deposit since you never know when you will need that money.
The interest rate you agreed to when you first deposited your funds is guaranteed for the duration of the interval you initially agreed to. Some financial institutions will compound your interest daily so that you can actually watch it grow.
How to Choose a Term Deposit Account
Due diligence is important when you’re selecting a term deposit account. You need to think about how much money you have to invest, what type of term deposit you want to invest in, what’s going on with interest rates in general as well as how long you want your investment term to be.
In most instances, the greater the amount of funds you’re able to invest in a term deposit account, the higher you can expect your interest rate to be. There are several types of term deposits:
• Traditional term deposits: With a traditional term deposit, your financial institution offers you one fixed interest rate over a fixed interval of time.
• Bump-up term deposits: Financial institutions that offer bump-up term deposits typically allow clients to put in a request for a higher interest rate if that financial institution increases its own annual percentage yield.
• Liquid term deposits: Liquid term deposits offer flexibility with the investment interval. Clients who want to withdraw their funds early may be able to do so without incurring a penalty.
When interest rates are rising, it may also be wise to wait until they begin to stabilize before investing in a term deposit at a given rate or to invest in a bump-up option that will allow you to request a higher interest rate during your term.
Many individuals invest in several term deposits at the same time. This investment approach is known as “laddering”. These investors will divide the funds they have available into term deposits that mature at different rates. This gives you access to your money at more frequent intervals without hampering your ability to take advantage of longer-term investments that offer higher interest rates. If interest rates go up, you will be in a better position to invest in term deposits with a higher interest yield.
The traditional ladder approach might divide your investment evenly in five term deposits that mature at different rates. When the earliest term deposit matures, you will have the option of reinvesting its funds in a longer-term deposit or of using those funds in some other manner.