Navigating term deposits

Term deposits are one of the safest places you can have your money invested.

Term deposits can be a great option because you know exactly what your returns will be and there is no uncertainty relating to the time frame.  They can be a great option for your personal savings and your superannuation, particularly for person in retirement.

The biggest drawback of term deposits today is the low rates of interest they earn.  During 2007/8, it was fairly common to be earning around 7% on a term deposit.  Eight years later, most rates are well below 3%.  For those on fixed incomes, these lower returns are causing challenges in funding living expenses.

Choosing a term can be tricky.  Most term deposits offer higher rates of interest if you agree to put your money away for a longer period of time.  For this reason, a strategy known as “laddering” can be a great way to maximise your interest whilst retaining flexibility.

Laddering involves splitting your money between a few term deposit accounts, thereby attracting high interest rates on longer deposits while still having liquid cash available.  Using this strategy can also help to hedge against interest rate movements, both good and bad.