5 things savvy investors know about term deposits

18 August 2017

Suppose you’re looking to invest your savings into a term deposit. Offering high interest rates and an even higher degree of investment certainty, they’re a great option for Kiwis looking to save, but it turns out there’s more to a term deposit than simply locking in your rate.

What is a term deposit?

Term deposits offer New Zealanders an easy way to earn high interest on their savings, with minimal hassle, all while keeping risks to a minimum. With the way a term deposit works, you simply select the amount you’d like to save, the amount of time you want to save it for, and then sit back and relax as your money does the work for you.

 

This all sounds great, but the best thing about a term deposit is that regardless of what’s happening with the economy e.g. the national rate falling, the amount of interest you earn remains the same over the life of the investment. This guarantees the return on your investment the minute you lock it in, unlike riskier investments like shares, or the variable rate of a standard savings account.

 

Save on your own terms

Like the tale of Goldilocks & The Three Bears, you need to find the right investment term for you. Not too long, and not too short, but just right! For example, if you put your money away for too long, you won’t have access to your savings when you need it most. But if you don’t put it away for long enough, you won’t earn the kind of interest you could or should have! Thankfully, the majority of New Zealand banks or credit unions offer terms ranging from 1-2 months all the way through to 5 years, giving you the flexibility to decide on a savings term that matches your short or long-term savings goals. Perhaps you’re saving for a car, which would be a short-to-medium term purchase. Here, you would set aside your money for, say, 12 months, so you’re ready to walk into the dealership when the time comes. On the other hand, maybe you’re preparing for the day you get to clock off work for the last time and finally retire. A longer term deposit can help you here, too. Term deposits are highly flexible, so don’t just settle for a predetermined term. Instead, consider what it is you’re saving for, and save on your own terms!

 

Start savings in seconds

You have a business meeting at 9. Lunch with friends at 1. Not to mention the odds and ends you need to catch up on when you get home. If you’re anything like us, you probably find yourself increasingly short of spare time, but being time poor doesn’t necessarily mean you have to be financially poor, either! Savvy savers understand the importance of making time for their finances, whether it’s setting aside a few hours to thrash out a budget, or a few days to devise a method for paying off their debts. It takes even less time than this to start saving. In fact, you can apply online at any of the major financial institutions using their online application forms and start saving in a matter of seconds. Your busy life is the best indicator that the future is fast approaching, so why not start saving for tomorrow, today?

 

Earn interest when it’s in your best interests

A great interest rate doesn’t amount to much if you can’t put it to use, right? Well, depending on the lender and the term you choose, most financial institutions will give you the option of when interest on your investment is paid e.g. monthly, quarterly, half-yearly, annually, or at the end of the term. You can easily use this freedom to your advantage to make savvy use of your savings. If you’re a bit of an impulsive spender, for example, you might want to have the interest held until the term is over. Those online sales can be mighty tempting, we know! If you want to invest further in other opportunities or diversify your investments, however, you can have the interest paid our earlier, and regularly, so you can invest this money elsewhere. It’s your money after all, and so is the choice!

 

Double down on your investments

Like a time capsule full of banknotes rather than nostalgic 80’s trinkets, you’ve just remembered that your term deposit is reaching maturity, so where to from here? One option available to you is to simply request that the balance, plus the interest, be transferred directly into an account of your choosing. If you’re looking to save further, however, you might want to consider reinvesting in another term deposit. For example, let’s say your initial investment was $10,000, over a 5 year period. Having earner $2,150 in interest, you could now reinvest this new total - $12,150 - into a new term deposit, and earn even more interest on this higher amount.

 

Never settle for low rates

New Zealanders are spoiled for choice when it comes to the range of term deposits on offer, with countless financial institutions offering great fixed rates and a variety of terms. With this kind of freedom at your fingertips, you shouldn’t just settle for the first good looking rate you find. You deserve better than that!

Instead, compare rates against the market. This will ensure you get to pick the best of the bunch, and make sure your money is working as hard for you as it possibly can.

 

Term Deposit Summary

The choice is yours, so set a term length that matches your exact savings requirements.

Setting up a term deposit is so easy that you can apply online and be saving in a matter of minutes.

When you earn interest is up to you, which gives you the flexibility to spend, save, or invest how you wish.

Your term deposit may be coming to an end, but your saving doesn’t have to! Reinvest your savings alongside the interest to earn even more!

New Zealanders are spoiled for choice when it comes to financial providers, so shop around until you find the best rate you can.

COMPARE TERM DEPOSIT RATES HERE