Tuesday, July 15, 2008

What in earth are Term Deposits?

Good question!

Term Deposits are a safe form of investment where you are paid a set interest for a certain length of time (term). It could be a month, six months, a year and so on. With a set interest rate you are protected from falling interest, but on the other hand cannot take advantage of rising interest rates. This may be suitable or not depending on your situation, some the best savings account that are available may stack up more favourably in some cases.

In some cases you may not add more funds during the set term and there may be a penalty for withdrawal before the term is up, or maturity date. On maturity, the account holder must instruct the bank what to do with the money. The choices are withdrawing it to another account, leaving it there for another - or different - term, adding more funds, adding the interest, or withdrawing the interest. If no instructions are forthcoming, then the bank will renew under the same conditions as before.

A term deposit is a good way of saving for a certain goal and helps you not to spend on unnecessary items. It attracts a higher interest rate than a transaction account. Generally, the longer the term, the higher the term deposits rates are - although this does vary depending on market conditions. In some cases there may be no fees. While there is no maximum amount, there is often a minimum amount to start.

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