Are term deposits worth it?

Fixed-term investments are a great way for Kiwis like you to secure your savings, lock in a great rate, and earn high interest. But should you really set your money aside just to earn high interest? And is it a worthwhile investment for you, whether you’re saving for a rainy day or retirement?

If you find you’re still on the fence having read up on how they work and when you can expect a return on your investment, then consider these other great benefits that make them more than worthwhile for Kiwis just like you.

Wait, what is it again?

Often earning a higher interest rate than other savings accounts, a term deposit sees you locking your money away at a fixed rate, and for a fixed term, which usually falls into one of two categories:

  • Short-term deposits - up to 12 months or less.
  • Long-term deposits - anywhere up to 5 years.

Any interest earned on a short-term deposit is usually paid out at the end of the term, while lengthier investments tend to pay out quarterly or annually into an account of your choosing. Once this term is up, you’ll then be given the option to either reinvest your funds - plus interest earned - into a new term deposit or have it deposited into your account in full.

Still on the fence? Consider these 3 benefits of a term deposit

1. They’re a safe investment

Fixed-term deposits are some of the safest ways you can invest your money. You simply select a term, lock in a great rate with a guaranteed return, and sit back as your money does the work for you.

2. They earn a higher interest rate

Even the highest rate savings accounts often can’t compete when it comes to interest rates. That said, this doesn’t automatically make savings accounts a bad option. Far from it, in fact.

The question of whether a savings account or a term deposit is best for you depends on the level of access you need to your money, how long you're comfortable setting it aside, and what you’re saving for.

That said, for those looking to save for the long-term and earn the highest rate, a term deposit is a great choice.

3. They offer a guaranteed return

When comparing interest rates of savings accounts and term investments, it’s important to remember that while the rates may be similar, the type of interest you earn is different. Savings accounts offer what is called a variable rate, which means the interest you earn fluctuates depending on various economic factors, the national rate, and your bank or credit union’s going rate, which is subject to change.

A term deposit, on the other hand, offers a fixed rate. That is, once you’ve locked in a rate, it will stay the same for the life of the term. There’s no need to keep an eye on the national rate, or bank on a return that might not eventuate: your return is guaranteed the moment you transfer the funds.


Want to know your options?

Learn about fixed-term deposits