Long Term Deposit

How a long term deposit can help you get ahead

If you have some money saved and are looking to earn more interest than what you're getting in your everyday account, you might want to consider a long term deposit. If you're not sure how long to lock your funds away for, here's some information that can help you make an informed decision.

What is a long term deposit?

A fixed term deposit is an investment option with a fixed interest rate. You choose the amount of time (the "term"), and your money is untouchable until this term is up. Your money earns a set amount of interest during this period.

Whilst not set in stone, a long term deposit generally means you are locking your money away for one year or more, and up to a period of five years. With a long term deposit you can generally choose to have the interest you earn paid into your savings account monthly, quarterly or annually.

Some of the other benefits of a long term deposit are:

• Low-risk investment option
• Fixed interest rate
• Usually a higher interest rate than a shorter term deposit
• Good way to save for long term goals
• Potential stream of income if you choose regular interest payment

Situations when a long term deposit is a good choice

If you're still not sure about long term deposits, there are a few things to consider. Longer term deposits are popular with retirees planning for the years ahead, and when interest rates are either decreasing or declining. You want to maximise your return, and you can do this through careful planning.

• Long term savings goal. If you have a long term savings goal in mind, a long term deposit is a viable option. For example if you are saving for a deposit on your first home, a long term deposit will help you keep your money safe in an account you can't access while you continue to build up your savings account balance.
• You have a habit of overspending. If you're fortunate enough to have extra money in your accounts, and find yourself overspending more often than not, a longer term investment can help you because you won't be able to access your money until the term is up.
• You've saved a lump sum. If you have a nice lump sum saved and you won't need it anytime soon, consider this type of deposit. This should be money that isn't important to help you maintain your budget such as a work bonus or inheritance.
• Close to retirement. You're thinking about retiring soon, or if you're close to retirement age, a long term deposit can provide a steady income stream as part of your overall investment portfolio.

Remember, when you acquire large sums of money, or are planning for your retirement you should always consult a financial planner to see what option is best for you and your family. 

Short term deposits

A short term deposit usually starts at a term of 2 or 3 months up to a year. You could use this as a trial run before you invest in a long term deposit. Some of the other benefits of a shorter term of deposit include:

• Shorter commitment period
• Makes it easier to meet short term investment goals
• You can add more money to your lump sum as each period ends
• If the general interest rate rises, you won't be stuck with a lower rate for years.

If you're looking for a low risk and low maintenance savings option, then a long term deposit could be the way to go. You can put your money into one account and benefit from having regular interest income over the term of the deposit. 

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