A Primer on Term Deposits

In investment, it is always true that the higher the return, the higher the risk. Every investment instrument will come with a certain risk. An in wealth building, slowly but surely is a sound plan. If you want to stay on the safe side of investing, term deposits can offer a solution for you.

Term deposits are accounts that are offered by bank and credit unions that bear fixed interests over a fixed amount of time. Term deposits offer higher interest rates than ordinary savings accounts but will often times require higher opening amounts. And while ordinary savings accounts will allow you to withdraw funds any time, term deposits can be only cashed in after the maturity date or otherwise you will be charged penalties.

The range of the fixed amount of time you will have to put the money in a term deposit is from 7 days to 5 years. The longer the time of a term deposit, the better the interest rates available. Longer terms will allow you to shop around for the best deposit rates available. Term deposits belong in the short to medium range investment.

The fixed interest rate feature of term deposits can protect you in times of declining or volatile interest rates. You will be guaranteed to receive a fix amount of interest over the agreed upon period. However, this could also be disadvantageous during periods when increases in interest rates occur.

The interests for term deposits are calculated daily and can be paid to you monthly, every six months, annually or upon maturity. You can choose to have your term deposit interests paid to you by check, transferred to another account or reinvested automatically which is one of the great features of term deposits. Also, term deposits can be opened for as little as $500 and you can even use term deposit as security when applying for a loan.

The disadvantages of using a term deposits is that you will not have easy access to your money during times of emergency and you will be charged penalties for early withdrawal. And unlike stocks, term deposits do not offer capital growth.

When investing in term deposits consider the following:

• Invest the right amount of money that you will not probably used for the length of the time of the term deposit. Remember to choose the length of the term to suit your financial status.

• Do not put all your eggs in one basket. Diversification is also applicable in bank accounts. Put some money in your savings account for easy access in times of need. Diversifying could also mean opening several term deposits with varying maturity dates and amounts. Using different banks and credit unions is also a good idea in diversification.

• Carefully study how the policy of the bank or credit union will affect you investment in case of early withdrawal. By comparing policies of different institutions, you should be able to identify the best policies available.

Using term deposits provide a secure form of investment you can add to your investment portfolio.

Disclaimer:

No investment advice provided to you.
This web site is not designed for the purpose of providing personal financial or investment advice. Information provided does not take into account your particular investment objectives, financial situation or investment needs.

You should assess whether the information on this web site is appropriate to your particular investment objectives, financial situation and investment needs. You should do this before making an investment decision on the basis of the information on this web site. You can either make this assessment yourself or seek the assistance of any adviser.