Term deposits are still considered a simple and safe way for many Aussies to increase their savings, and they remain a first-choice option. The 12 month term deposit is one of the most talked-about term-lengths because it enables the depositor to earn a decent interest rate while keeping the money relatively accessible. But how does it compare to longer-term deposits, and which one is right for you?? Let’s investigate the advantages and disadvantages.
What Is a 12 Month Term Deposit?
A 12 month term deposit is a savings product with a set term, which means that you are not allowed to access the money for one year at a certain interest rate. The money is not available to you without paying a penalty during the term, but the tradeoff is that you get a steady, frequently better, return than with a regular savings account.
Pros of a 12 Month Term Deposit
- Better Interest Rates than Short-Term Deposits
Usually, you get better interest rates on 12-month term deposits compared to shorter ones like 3 or 6 months. So, you can make more money on your savings without waiting too long.
- Good Balance of Flexibility and Returns
If you compare 12 months with 2, 3, or 5 years terms, the 12 months option would be the one that enables you to get to your money faster without waiting for the expiry of the term if your financial needs have changed. Such an option is suitable for money savers who have no intention of locking their funds for an extended period but still want to get more than what short-term investments offer.
- Predictable Income
A fixed interest rate allows you to know the exact amount of your earnings throughout the year, which in turn makes it easier to manage your finances. In times of economic turmoil, this assurance can be quite reassuring.
Cons of a 12 Month Term Deposit
- Interest Rates Might Be Lower than Longer Terms
You usually get good returns with 12-month term deposits, but sometimes the rates aren’t as good as if you lock your money away for, say, 3 or 5 years. If you are okay with keeping your money tied up for longer, you could end up earning more interest overall.
- Limited Access to Funds
Just like any other term deposit, your funds are inaccessible for the duration of the term. If you take your money out before the maturity date, there is usually a charge that will be deducted from your returns, hence it is not a good choice if you expect to require your money shortly.
- Potential Opportunity Cost
If interest rates go up while you have a 12-month deposit, you might not get the best possible return compared to other banks or longer-term deposits. This risk applies to everyone with term deposits, but is more apparent when the terms are shorter.
How to Decide Between a 12 Month and Longer-Term Deposit
Picking the right term length depends on what you want to do with your money and how comfortable you are with not touching it. If you like having options and want to keep things flexible, a 12-month term deposit is a great choice. You can get a good interest rate without a super-long commitment.
But in case you have money that you won’t need for the next several years and you don’t mind that your money is locked, then a deposit for a longer term could give you higher returns.
Where to Find Competitive 12 Month Term Deposit Rates
When interest rates are going up and down, it is useful for you to compare the offers. Judo bank and other banks provide you with good rates of interest and convenient options for fixed deposits. To find a facility that suits you, you may browse the market to know the available deals and calculate the interest that you will earn if you keep your money for 12 months.
