How safe are term deposits?
Putting money aside for a rainy day, or a special purchase, is a good idea – but only if you know it’s secure.
Sponsored Story
Key points
Term deposits return a fixed interest rate on money invested for a set time.
Up to $250,000, they are covered by a government guarantee on deposits.
The are not impacted by interest rate fluctuations during that term.
Financial security is the top priority for many older Australians. If we have money to save, we want to make sure it is working for us, it’s in safe hands, and it will be there when we need it.
While younger people may take a few financial risks in the hope that they pay off, as we get older, we want investment options that provide stability, predictable returns, and peace of mind.
One such option is a term deposit. But how secure are term deposits, and why might they be an excellent choice for retirees and those nearing retirement?
A term deposit is a fixed investment where you place a lump sum of money in a bank or other financial institution for a set period, known as the “term”. During this period, the funds earn interest at a fixed rate, and you cannot access them without incurring a penalty. Typical terms range from a few months to several years.
One of the key attractions of term deposits is their security. Here’s why they are considered a safe investment:
Government guarantee: In Australia, term deposits and other qualified savings up to $250,000 per account holder, per authorised deposit-taking institution (ADI), are protected under the Financial Claims Scheme (FCS). This means that even if the bank or financial institution collapses, your funds (up to the limit) are guaranteed by the government.
Fixed interest rates: Unlike shares or other market-linked investments, term deposits offer a guaranteed interest rate for the duration of the term. This protects you from market volatility and ensures that you know exactly how much you will earn.
No market risk: Since your money is not subject to stock market fluctuations, term deposits provide stability. This makes them particularly appealing for retirees who rely on fixed incomes and cannot afford to take significant risks with their savings.
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 4.70% per annum.
National Seniors members can earn a special rate of 4.70% for 5 months or 4.50% for 6 months on maturity for term deposits over $5,000.
Beyond their security, term deposits offer several other advantages for seniors:
Predictability: Knowing the exact return on your investment allows for better financial planning.
No management fees: Unlike some other investments, term deposits generally do not have ongoing fees that eat into your returns.
Encourage disciplined saving: Since early withdrawal incurs a penalty, term deposits help prevent impulsive spending, ensuring funds are available when they are needed.
While term deposits are secure and reliable, they do have limitations. The fixed-term nature means you cannot access your funds easily, and interest rates may not always keep pace with inflation. Before committing, compare the interest rates on offer and choose a term that aligns with your financial goals.
National Seniors Australia Ltd ABN 89 050 523 003 arranges deposits as an authorised representative (AR 282736) of Auswide Bank Ltd (Auswide Bank) ABN 40 087 652 060, AFSL and Australian Credit Licence 239686. Auswide Bank is a wholly owned subsidiary of MyState Bank Limited ABN 89 067 729 195, part of MyState Limited ABN 26 133 623 962. We do not provide any advice based on any consideration of your objectives, financial situation or needs. A target market determination can be obtained at auswidebank.com.au/tmd. Before making a decision to invest, please consider the Terms and Conditions. If you make a deposit, we will receive a commission from Auswide Bank. For more information about our relationship with Auswide Bank please read the Financial Service Guide contained in the Terms and Conditions*. This account is protected by the Australian Government deposit guarantee. Up to $250,000 of deposits in ‘protected accounts’ held by an entity with Auswide Bank are covered under the Financial Claims Scheme. Information on the Financial Claims Scheme is available at www.fcs.gov.au
