Is this a good time to lock in your savings?

As the end of the financial year (EOFY) approaches on 30 June, many Australians are reviewing their finances to maximise returns and secure their savings. 

One common consideration is whether to lock funds into a term deposit. But is this the right time? 

Let’s explore what term deposits offer and whether they align with your financial goals.

A term deposit is a type of savings account where you invest a fixed amount of money for a predetermined period (the term) at a fixed interest rate. Terms typically range from one month to five years. 

Unlike standard savings accounts, term deposits restrict access to your money until maturity, ensuring that your savings grow without temptation for early withdrawals. In return, banks offer a guaranteed interest rate, making them a low-risk investment option.

The EOFY is a strategic time to assess term deposits for several reasons: 

1. Interest rate trends – The Reserve Bank of Australia (RBA) and broader economic conditions influence interest rates. If rates are relatively high, locking in a term deposit before potential rate cuts can secure better returns. 

2. Tax planning benefits – Any interest earned on a term deposit is taxable in the financial year it is received. If you invest just before EOFY, most of the earnings will be taxed in the following financial year, potentially offering tax planning advantages. 

3. Certainty in uncertain markets – With fluctuating share markets and economic uncertainty, a term deposit provides stability. Knowing exactly how much you’ll earn over the term helps in budgeting and future financial planning. 

4. EOFY banking incentives – Some financial institutions offer special rates or promotions leading up to EOFY, making it a great time to compare options and secure a better deal.

While term deposits are a safe investment, timing is crucial. Consider these factors: 

• Current interest rates: If rates are high, locking in now could be advantageous. If they’re expected to rise further, a shorter-term deposit might be preferable. 

• Liquidity needs: If you might need access to your funds soon, a flexible savings account or staggered term deposits (laddering strategy) could be better. 

• Alternative investment opportunities: Compare term deposit returns with other low-risk investments like high-interest savings accounts or bonds. 

Locking in a term deposit before 30 June can be a smart financial move, especially if you find a competitive rate and want certainty in your returns. 

Staying informed about interest rate movements and aligning your decision with your liquidity needs will ensure the best outcome for your savings.