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Pros and cons of a short-term term deposit account

If you are after a reliably safe, cash-only investment, opening a short-term term deposit account may be an ideal option for you, but depending on your circumstances, there are both advantages and disadvantages to it. Here’s what to consider.

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What is a short-term term deposit account?

National Seniors Term Deposit

With no fees and flexible terms, the National Seniors Term Deposit allows you to lock in a competitive interest rate that’s protected for your fixed term.  

You can earn competitive interest rates up to 5.00% per annum. 

National Seniors members can earn a special rate of 4.95% for 4 months, 5.00% for 7 months, or 5.00% for 12 months on maturity for term deposits over $5,000.

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It’s a specific bank account where you can lock away cash for a set period, usually within a year, at a set interest rate.

Regarded as a reasonably low-risk product, along with long-term term deposits, this type of account differs from a demand deposit – or transactional account – which offers immediate access and flexibility and typically doesn’t earn interest on the balance.

Customers may consider a short-term term deposit account if they have a certain amount of money that needs to be kept safe for a brief time.

Short-term term deposits usually have set terms lasting up to one year. The more common term-deposit terms can be as short as one month up to 12 months.

You can choose for interest to be paid monthly (usually at a lower interest rate) or be paid on maturity (that is, the end of your term). You can choose term deposits longer than this, but that will lock your money away for longer and not be as beneficial for short-term savings goals.

Depending on your circumstances, a short-term term deposit account may be a good option for you. If you are considering opening one, here are the pros and cons of short-term term deposit accounts.

Short term term-deposit pros

  • A guaranteed interest rate for up to 12 months.

  • The perfect way to temporarily stop you from impulse spending money that you wish to save for now.

  • If you’ve received money unexpectedly, a short-term term deposit is a safe place to keep it while you have time to think about what to do with it.

  • When you do have a money plan, this type of account can be a good place to store money if you need it soon but not immediately.

  • The interest rate is protected for the period of your term, even if rates decrease.

  • Can be rolled over at the end of the term if required – however this could be at a different rate if rates have changed since you commenced the term.

  • You can experience cash rate rises sooner (on the flipside, you can also experience cuts sooner too).

  • Low maintenance – lock it and leave it.

  • Fee-free, as long as you don’t want to make a withdrawal within the term.

Short term term-deposit cons

  • You may not be able to access your money without an interest penalty.

  • You aren’t able to add additional deposits to your term deposit account.

  • They can have a lower interest rate than longer-term term deposit accounts.

  • It may be short-term, but you won’t be able to touch your money if you happen to need it within that term without an interest penalty.

  • Not as flexible as some high-interest savings accounts with more features and options.

  • You may not be able to earn bonus interest on your term deposit like you would with a savings account.

What about a long-term term deposit account?

That depends on what you want to do with your money. A long-term term deposit is great for “nest egg” money that you may want to put away and forget about for now. They often offer higher interest rates than shorter-term term deposits.  

Utilising a long-term account can mean your money is locked in for a longer period of time, you may require a minimum amount of money to be deposited. With this type of account, there may be strict rules on when and how you can access the funds if you need them before the end of the term. Penalties can apply if you withdraw your money early.

If you are planning on using your money sooner or are just not sure, the short-term term deposit account may be a more favourable option.

Safety first

With these pros and cons in mind, a short-term term deposit account is a reliable investment option worth investigating. There’s little chance of losing any money and a greater chance of earning a little interest on your balance while you ponder the future of your stash of cash.  

This information has been provided as general advice. NSA has not considered your financial circumstances, needs or objectives.

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