Are Term Deposits Worth It?

Deposits Worth

If you’re looking to make cash money with little to no work on your part or you’re interested in earning more interest on your money than a traditional savings account pays, you may consider opening a term deposit account. A term deposit might be a good place to start if you need a college saving plan, a way to jump-start an emergency fund, save for a down payment on a new home, or even meet a short- term goal.

A term deposit is an account held at a financial institution where the money is held for a set amount of time depending on the account type. Generally, these accounts are short- term and mature between a month to a few years. Available time-frames usually include a six-month account to a five-year CD. Some common types of term deposit accounts include certificates of deposit (CD) and time deposits.

Here’s Why you Should Consider Opening a term Deposit Account

A new customer to a new term deposit account can expect a higher rate of interest to their minimum deposit than with their traditional savings account. An interest payout can land anywhere between .70% to 1.65% and depending on the account type and a $50,000 minimum deposit, this payout will be released at the end of the term be it monthly, biannually, or annually (check the account details of each term deposit for peace of mind the new account is for you).

Term deposits work by allowing a credit union to lend to other customers’ money from your account. In return for borrowing your money, you receive an interest payment for your deposit account. Another benefit of a term deposit is they eliminate each month’s worth of maintenance fee. Additionally, some savings account require the account holder to maintain a minimum account balance in their savings account. Term deposits are a great option for a higher rate of interest than a traditional savings account can payout giving you more amount of money at the end of the term to meet your individual financial goals.

As With Anything, there are a Few Cons — Just Weigh your Options

While opening a new term account with a credit union has its benefits, a deposit account has its drawbacks in comparison to a savings account. For example, Term rates are pretty low at the moment. Just months ago, term deposit rates were at 3%, but with the decline in the cash rate, the interest rates fell.

Additionally, in order to get the best out of a certificate of deposit from a credit union, a large minimum initial deposit is required to make the most by the maturity date of the deposit account which may not be the most practical for someone who is just finding their saving goal or opening a new bank account. Another negative to term deposits is the investor no longer has access to the money they deposited into the CD. If an emergency arises, usually a heavy early withdrawal penalty is applied to your account balance causing you to lose money in the long run whereas, with a traditional savings account, these penalties do not apply.

With anything else, there are definite pros and cons to opening a new term deposit account. Which one is best for you is only a decision an account holder and their banker at a credit union can decide. No matter what you chose, remember banks have many ways to make money with higher interest and many ways to track your savings goal with a mobile app and direct deposit to take the guesswork out of managing a check book.


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