What are you saving up for? Unknown to many, this should always be the first step in giving you the motivation to save. And when it comes to growing your savings in any way, term deposits are known to be a reliable option. However, there is a fork in the road you need to face before making a decision, and that is either going for a fixed-term deposit rate or the variable-term deposit rate. If you are here to know the difference between the two, then you are exactly where you need to be. Understanding both of these term deposits rates in Australia can help you get the best out of your goals and even your financial situation.
The Basics: What Are Term Deposits?
For banks or those industries in the financial market, a term deposit is a savings product that lets you invest your money for a set period of time. And because this is a low-risk way to earn interest while saving, the return on your finances does not fluctuate with the financial market. However, this also comes with conditions, or “terms”, as you agree not to touch your funds until the term ends. What’s more is that they are easy to understand, do not come with surprise charges, and are sometimes a better option than regular savings accounts.
Fixed Term Deposit Rates
The first term deposit rate we are to look into is the fixed term deposit rate. It is called fixed-rate because of the interest rate that is locked in on your account for the entire duration of your term.
Just by knowing which period you are going for, you will know exactly how much you will be earning by the end of the period, which is an advantage for people who want stability from unpredictable and low interest rates.
- Fixed rates give you no surprises and no changes, so you’ll know exactly how much you will be getting in return.
- They are great for people that are planning ahead and have specific financial goals in mind that even in the drop of market rates, it will not be affected.
- However, if the interest rates rise during the term of your savings, your rate will not go up.
- And when you withdraw the money before the end of the term, you’ll be able to face penalty charges.
Variable Term Deposit Rates
On the flip side, a variable-rate term deposit means the interest rate of your account can change throughout your term. Your returns may go up if rates increase, but they can also fall if rates dip. Depending on how advantageous or not this term is, here are some of its features:
- The interest rates of your account go up depending on the financial situation, so there is a potential for higher interest returns.
- It gives you the flexibility to withdraw a partial amount or even make adjustments to your savings for a limited period so you can return even before the penalty starts.
- However, other than the uncertainty of not knowing when your term ends, there also is a risk of having a lower return depending on the fluctuation in interest rates.
- Because of this, you might have to rely on estimating your future gain, as you won’t know exactly how much you’ll be getting.
Which One Is Right for You?
Choosing between fixed and variable rates always comes down to your personal financial situation and the risk you are willing to take.
If you prefer knowing exactly how much you will be getting, you are on the path of choosing the fixed rate term. However, if you are a daredevil and you just want to save up for the rainy days, you are to choose the variable term deposit rates.
Tips for Making the Most of Your Term Deposit
- Always do your research first and see which offers fit your lifestyle best.
- Understand the penalties that come with each term before you take the leap. Remember that there will always be consequences to each decision and weigh them in.
- Deep dive into the world of the financial market and look for market trends in the near future that will affect your savings in the long run.
Saving up for something entails not only rewards but also risks. And though everything comes with a price, term deposits will always be a trusted way to grow your money securely and steadily. Remember that whichever you choose, you are on your path to secure your future.
