Term Deposit Interest Rates
Term deposits are basically money deposits placed in a banking institution which can not be withdrawn for a specified period of time, and which incur term deposit interest rates that the bank will have to pay on the original amount upon the term maturing. The term deposit may also be reconditioned to another term deposit, when a depositor sees it fit to extend the growth of their investment. Term deposits can also go by other names like time deposits or bonds. They are manifested through a certificate of deposit, the actual financial product provided by ADIs (Authorised Deposit-taking Institutions) or banks.
Term deposits are basically risk-free and are just as safe as deposits placed on savings accounts otherwise known as "demand" deposits. They are great money vehicles, especially when the depositor sees no need for his money at present time. Although they have lower interest rates acquired per annum compared to stocks, they are less susceptible to financial risks.
A downside to term deposits is the fact of hampered financial flexibility. Since the deposit could not be withdrawn for a particular period of time which could range from a few months to five years, it is imperative that penalties are always charged upon premature withdrawal.
The need for term deposits
Many people turn to term deposits in order to make their money grow. This provides a concept of mutualism among depositors and banks. The Australian banks' lending capacity for annuities, mortgages, etc. is naturally directed by how much money they have stored under their accounts. So to speak, term deposits make the banks proliferate well in many aspects that make their sustenance.
There are two kinds of term deposits: short term deposits and long term deposits. Long term deposits are basically those that encompass more than a year of term for maturity. The basic premise by which they are differentiated is with the quality of interest rates associated to either terms. Short term deposits sustain lower interest rates while long term deposits are considered to be more stable, especially that some aspects like inflation rates could affect both kinds of term deposits.
The emphasis on term deposit interest rates
Interest rates associated to term deposits are variable to every bank. There are factors which affect the rates, marking great bearings on the stability of a bank or ADI. It would be safe to assume that banks will try to increase their interest rates when the need arises, like when they have sapped out their lending reserves.
This is where the major premise lies in choosing a bank to invest term deposits in. One should consider stability and the actual term deposit interest rates of the bank at the same time. There are institutions which always up the ante in the Australian banking niche though, and are great investment institutions for term deposits. Interest rates in Australia are usually in between the 5-7% range per annum.
The greatest risk which comes when inflation rates are high and interest rates are low is the fact that a term deposit may not even pay out enough growth that is worthwhile for the customer. Thus, although the risks are lower than investments done in stocks, a term deposit is just as dependent on worthy interest rates to be even considered as a wise investment.