Long Term Deposits

There are several features you should compare when looking at long term deposits.  These are:

• Interest rate – expressed as a percentage per annum, the higher the interest rate offered, the better, and the faster your savings will grow. For example, a five-year deposit of $50,000 at 3.00% p.a. would generate $1,431 more than the same deposit at 2.50% p.a.
• Interest payment – choose how often your interest is paid to you, with the more frequent period often resulting in the most interest. Even though you may be offered a slightly higher interest rate (often 0.05% p.a.) to receive your interest less often, it may be better to have it paid monthly or as frequently as possible.  Use Savvy’s term deposit calculator to work out how much you'll receive each interest period.
• Term availability – make sure the financial institution you choose offers the exact term you require. Not all institutions offer all lengths of time, so if you’re after a more unusual term (for example, 18 months) make sure this term is actually offered.  Most institutions do offer the standard one, two, three, four and five-year terms, however.
• Minimum deposit limits – institutions have a required minimum deposit, which starts as low as $1,000 but can reach up to as much as $25,000 in some cases. When comparing long term deposit providers, make sure the one you choose has a minimum deposit requirement which suits the size of your savings.
• Maximum deposit limits – these are more of a consideration for more serious long-term investors and self-managed super fund (SMSF) term deposits, starting at a maximum of $250,000 up to $5 million or more.
• Withdrawal notice – most institutions require a period of notice before funds can be withdrawn from a long term deposit. This varies between 14 days and 30 days, so compare notice periods with Savvy before making your investment decision.
• Emergency access to funds – most financial institutions have provisions to allow you to access your funds.  However, an early withdrawal penalty will usually be charged, ranging from $30 upwards to $50 or more.  In addition, you could also lose some of the interest that you would have earned on your deposit.  The amount that you’ll lose will be calculated as a proportion of the length of time you’d agreed to, and how early into this term you wish to break your deposit contract, which can reach up to 90% of your total interest earned.