Jan

31

The Different Kinds Of Term Deposits

Posted In: Personal Finance

There are numerous different kinds of term deposits, and for you as a customer the important thing is to find the account that best suits your needs. Your money can make money for you, if you’re prepared to wait for it to mature. Shopping around for the best rate of interest and the best term for your needs is essential, as if you choose an account with too long a term and find that you need to make a withdrawal you will lose some of your money.

The rollover term deposit is a fine way of saving if you are prepared to put money away for an extended period of time. An automatic rollover term deposit allows you to leave instructions with the bank to renew your deposit after a certain period of time has elapsed. You can choose at the point of rollover to withdraw the interest and leave your original capital to accrue interest again. Alternatively, you can leave the whole lot in there to accrue yet more interest, or withdraw it all on maturity. The best bet is to leave instructions with your bank to contact you shortly before maturity to discuss what you want to do.

There are pros and cons to the rollover term deposit. One of the pros is the greater flexibility that it offers. If finances have become a little strained over the duration of your deposit, then the cash you deposited, plus interest, can provide a cushion that will be the difference between continuing to function as before, and financial strictures that no one really wants to contemplate. If things have gone well, then you can allow your money to carry on making more money for you. The drawback – the main one anyway – is that many rollover term deposits have a minimum qualifying amount, and that if you want to take some money out before the term matures you will face a cash penalty.
If you want the security of knowing that you will be able to go and get the money out in an emergency without facing a penalty, then the best way of going about it is to open a “no penalty” term deposit. This differs from the usual term deposits in that – as the name suggests – there is no penalty for early partial withdrawals. After all, many of us save for a rainy day, and although weather forecasters can do great things with computers and the like, it can be difficult to predict a rainy day twelve months before it happens.

The advantages of a no penalty term deposit are clear – no penalties for making partial withdrawals and a guaranteed rate of interest for the life of the account. However, one of the drawbacks is in the very fact that the rate of interest is guaranteed to stay the same for the duration – so if the national interest rate rises in the meantime you do not benefit. Then again, if you want to limit your risk you have to accept that it will limit your return to an extent. Shop around to see what offers you can get – you may be pleasantly surprised.

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