What Is A Term Deposit Account & How Can You Benefit From One?

Do you want to save up for a large purchase like a car or new appliance? Maybe you just want to keep your money in a safe place for the short term.

In either case, a term deposit is a type of savings account that can help you meet your goals. 

These savings vehicles are popular with a wide number of people and can be used for many different purposes. But is a term deposit account right for you? Let's take a closer look at how term deposit accounts work, how to compare them and how to find the best online account for you.

What is a term deposit account?

A term deposit account works like this: You make an initial cash investment with your bank or financial institution that grows interest over a fixed amount of time, the "term." It's that simple.

Typically, terms can range from as few as a couple months to as long as five years. 

Term deposits differ from high-interest savings accounts, the other main type of account. Whereas the latter has a variable interest rate which may move up or down, term deposit accounts have a fixed rate, ensuring your money grows at a dependable pace.

Pros and cons of term deposit accounts

While there are many advantages of term deposit accounts, there are some disadvantages, too. Weighing them against one another can help you decide if a term deposit is right for you.


● Low risk: There is zero chance your interest rate falls, unlike a high-interest savings account. 

● Flexibility: As mentioned, the length of the term is quite flexible, making term deposit accounts both a short-term and long-term option.

Low touch: You don't have to do much beyond making the initial investment. Term deposit accounts are fairly set-it-and-forget-it.


● Money is locked up: Once you make that deposit, your money is largely inaccessible until the term date has been reached.

Withdrawal penalties: If you do want to dip into your savings early, you'll likely need to pay a withdrawal penalty fee.

One deposit, that's it: You can't make any additional contributions to your term deposit beyond the initial investment.  

Why a term deposit account might be right for you

Still considering the benefits of term deposit accounts against the downsides? Here are some scenarios in which a term deposit is a great fit for your personal financial goals:

● You seek safe returns: There's very little chance your savings will lose value in a term deposit account, thanks to the fixed interest rate. This structure is advantageous if you want to avoid short-term volatility or if you desire a bankable return on investment to use for your big-ticket purchase.

You want to save up for a long-off goal: The fact your money is inaccessible might not be a con, ultimately. Such restrictions can help prevent you from raiding your savings or using it to make impulse purchases. This helps keep your investment intact until your term expires.

You need somewhere to put a lump sum: Typically, the more you commit to saving through a term deposit account, the higher the interest rate you'll be offered. Similarly, the longer the term, the higher the rate. If you have a lump sum you're not looking to use any time soon, parking it in a term deposit account could pay off.


Interested in learning more about choosing a term deposit account? Talk to your local BOQ team for helpful advice and information on finding the best online account and taking the next steps. 


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