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Tuesday, March 06, 2018

What is a term deposit?

A term deposit is a cash investment held at a financial institution — bank or licenced credit institution for an agreed rate of interest over a fixed amount of time, known as a term.

When deposited, the customer understands that the money is there for the pre-determined term, which usually ranges from three months to 10 years and the interest rate is guaranteed not to change for that nominated term.

Typically, the money can only be withdrawn at the end of the term. Term deposits are popular with investors who prefer capital security and a set return as opposed to the fluctuations of say, the share market.

What are the requirements?

Usually a completed standard application form, ID and similar documents are needed to open a term deposit account with a financial institution.

How is interest paid?

Interest can be paid quarterly, half yearly, annually or on maturity. Interest may be compounded to the deposit amount dependent on your specific investment choice.


When you consider the rate of interest you want to earn, you should compare it to the current inflation rate to ensure you are ahead. For example, if the rate of interest is 1.75 per cent p.a. and the inflation rate is 2.90 per cent p.a., you are really losing 1.15 per cent p.a. in real terms!

Can I take the money back whenever I feel like it?

No. It is locked in for the term as described above.

Does the investor pay any tax?

Tax is payable on the interest earned on the deposit. But if you only earn up to the threshold of gross $30,000 per annum, you may obtain a certificate of exemption from FRCA.

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