Term deposits

Retirees tend to be more vulnerable to a volatile investment market than people who are working. Many retirees cannot afford to endure any losses to their portfolio, which makes a lower risk option such as a term deposit appealing.

A term deposit allows you to invest some of your money in an account with fixed interest for a fixed period of time (usually between three months and five years). You can withdraw or reinvest that money once the term has finished (reached maturity).

• They are a low risk option with fixed rates for a fixed term – this means your rates won't be affected by market fluctuations (and you are protected by the Financial Claims Scheme - see right)
• They are low maintenance - set and forget without the stress and cash in once the product reaches maturity.
• There are no fees - unless you choose to withdraw funds before the end of the term.

If you have a higher tolerance for investment risk or are looking for higher returns, a term deposit may not be the best product for you.

Other cons include:

• Less flexibility (your money is locked away and you can't make extra deposits)
• Returns may be substandard compared with other options (particularly in strong or rising markets)
• Rollover terms may be less competitive.

You can read more about the pros and cons of term deposits on the MoneySmart website.

Remember: Not all term deposits are created equal. Rates may be lower than you realise. Check the terms and conditions carefully. It is recommended you consult with a professional financial advisor before making a decision to invest in a term deposit or any other financial product.