Long Term Saving with Term Deposits

So you've managed to put aside some cash - what now? Money stuffed into a mattress doesn't grow. But money deposited for a fixed term, or in a high interest account, works for you by earning interest - and is also a lot safer. The longer you leave your savings in an appropriate account, the more you'll make.

How Term Deposit Accounts Work

Basically, term deposits are an investment option offered by banks. Here, the money that you will deposit at the banking institution of your choice will be stored there for a certain 'term' or period of time - upon which it would earn a particular percentage as interest.

Let's say that the timeframe for the term deposit is five years, you will not be allowed to withdraw the funds that you deposited because it has not matured yet. If you do need to redeem a Term Deposit before maturity, additional charges will apply.

At the expiry of the term, investors may choose from the following options - depending on the banking institution. The first option is to withdraw both the principal and the interest that your savings earned by the end of the term or the maturity date of the account.

Or, you can take your earnings and re-invest the principal. A further option is to re-invest both the original amount and the additional income - and re-invest for a further period.

Generally speaking, the longer the period of time for which an investor is prepared to commit, the better the rate and the greater the income.

Term Deposits versus High Interest Savings Accounts

Now that you already have an idea about how term deposits work, what is the advantage of this option over high interest savings accounts? A Term Deposit shares many characteristics with a savings account, the distinction being the higher interest rate paid in return for agreeing to "lock-in" for a period of time.

The major advantage of a high interest savings account is the ability to withdraw funds whenever you wish.

With high interest savings, you will not be able to easily withdraw money from your account anytime you want. One reason to choose a fixed deposit over an at call account is that they usually pay a higher rate of interest - meaning more income for you. A Final Word about Term Deposits

At the end of the day, it doesn't matter whether you prefer term deposits over high interest savings or if it's the other way around. It is vital to pick the investment option that provides the best balance between interest and availability.

If you choose a high interest savings account, for example, you will be able to withdraw funds from it whenever you encounter a financial emergency.

On the other hand, term deposits are an extremely safe form of investment for conservative investors who do not wish to take on any more financial risks than they have to.


------

This article on saving money and high interest savings account products is by Richard Greenwood of the Click 4 Group which runs a number of finance comparison websites to help consumers compare and apply for the best banking products for their needs. The sites feature leading banks including
term deposit accounts
.