Term deposits traditionally offer the reward of a higher interest rate in return for locking your money away for a fixed period of time. But with some shopping around, it’s possible to get a generous return on your savings while still having ‘at call’ access to your funds.
Indeed, there can be very little difference on the rates offered by some 1-year term deposits and many online savers. As a guide, a rate of 5.5% is achievable on both.
A 1-year term is significant because the federal government recently announced that it will reduce its security guarantee on bank deposits from $1 million to $250,000 per account effective from 1 February 2012.
This is earmarked as a permanent deposit guarantee scheme that replaces the emergency scheme, which was introduced in 2008 at the height of the global financial crisis.
The government says the new cap will offer protection for around 99% of savings held on deposit. Existing term deposits will still be protected up to $1 million until 31 December 2012 or maturity date, whichever comes first.
In terms of what’s available, research group Canstar Cannex has nominated Westpac for its ‘Best Value’ savings award citing the bank’s range of interest bearing accounts including the ‘e-saver’ online account offering new customers 5.75% for the first four months, followed by 5% thereafter.
But if you look beyond the big banks, there are plenty of appealing deals available with smaller institutions.
On a 1-year term deposit for instance, your money can earn around 5.9% with Heritage Building Society or 5.8% with Bankmecu.
Many of these institutions can afford to offer strong rates on deposits because they don’t have the costs associated with a large branch network. Instead, customers have the option of completing transactions over the internet.
That said, industry research shows around 67% of people want face to face contact when they open a term deposit. It’s understandable, but it shouldn’t stop you getting a top rate for your savings.
With some banks, like ING DIRECT, you can open a term deposit at Australia Post outlets. Other smaller financial institutions have an affiliation with one of the major banks so you can open a deposit account at the local branch of another institution.
Whichever way you choose to open an account, the key is to make sure you are getting a competitive rate. Comparison websites like RateCity, Mozo or Canstar are a good source of current rates across a variety of institutions. And remember to check for any fees – they will eat into your returns.