Term deposit (CD) is a type of deposit account offered by banks and credit unions. This product is similar to a savings account but offers a higher interest rate.
What is the minimum amount for term deposit?
Unlike savings accounts, money in term deposits cannot be withdrawn until the end of the term agreed upon by the bank and the depositor. This makes term deposits more secure and helps prevent impulsive spending.
The key benefit of a smsf term deposit is that you can earn a guaranteed rate of interest for the duration of your investment tenure. This means that you won’t be subject to the volatility of market movements that may occur with stocks and other investments.
However, there are downsides to investing in term deposits:
Interest rate risk and inflation risk
Term deposit rates typically do not keep up with the changes in prices that occur in the economy over time. This can make it difficult for term deposit customers to maintain their purchasing power when the money in the deposit becomes worthless over time.
A term deposit investor can reduce this risk by laddering multiple term deposits of different lengths to spread out their investment and lessen the chance of interest rates falling before they’ve reached maturity. They can also opt to roll over their term deposits, which lets them continue earning interest on the same principal amount when the first CD matures.
Despite the benefits of term deposits, there are many reasons why consumers might prefer other types of investments instead. Some of these include the ability to add more money to your savings on a regular basis or the potential to invest in alternative assets such as stocks, real estate, precious metals and cryptocurrency.