The emergence of the Renaissance followed the foundation of the Medici Bank. One can argue that this monetary institution was responsible for the European reawakening. The banking sector contributes heavily to our country’s financial system. Banks play an essential role in the growth and enhancement of New Zealand’s economy. This article will lead you through some useful tips to select the best institution to open a term deposit.
A glimpse at different bank accounts
Financial establishments offer you different kinds of bank accounts. The nature and quality of these accounts fluctuate based on users’ varied requirements. You can do whatever you like with your money. You can dump it all in a single account or only place a certain amount of it.
You can give your paycheck to a banking institution’s savings account. But you can also choose to open a temporary account where you can later withdraw it for other purposes.
Let’s look at your different banking options briefly:
- Savings account: Choose this account if you wish to earn a modest interest on your money. Although they allow limited withdrawal access, they’re safe and reliable.
- Term Deposit: You can place your paycheck for a limited amount of time called maturity. When the age of maturity expires, you can withdraw your money.
- Current account: This form of deposit account is also known as a checking/transactional account. It allows you ample permissions of deposit and withdrawal.
How to choose the most satisfactory deposit account?
A term deposit has different names in different countries. It’s also called a time deposit or a certificate of deposit (CD) in the United States. Banks in New Zealand provide different interest rates on term deposits. It’s up to you to compare multiple bank accounts and choose the best monetary option:
Compare interest rates
You should compare term deposit rates while choosing the most suitable banking institution. It is the most crucial factor in the process of opening a new term deposit. The interest rate depends on the minimum amount and the investment timeframe.
Banks in New Zealand allow you to allocate your money for one month to 5 years. The minimum deposit required can also vary between $1,000 to $10,000. The interest rate offered can range from less than 1% to more than 2%. There’s a straightforward rule to remember: more considerable the amount and more extended the maturity, the more interest you can expect.
Interest credited and paid
Banking establishments credit interest to your account and paid it according to a planned schedule. It can be quarterly (4 times a year) or annually (1 time a year). Some banks pay your interest returns monthly, but most of them wait for maturity.
There are 3-monthly and 6-monthly options available too. You have to do substantial research regarding your expenditures and monetary needs before making this decision. You will find that banks are more lenient in interest payments when you’re investing more money. But other institutions let you enjoy interest revenue even if the maturity’s for a month.
Short-term or long-term maturity
The needs of your domestic budget will decide how long you can deposit your money. All ADIs (authorized deposit-taking institutions) provide both short-term and long-term options. But long-term maturity bounds you not to touch that money for years. It causes economic difficulties when you unexpectedly need the money for something else.
On the other hand, the interest rate you’re getting in 2020 may seem fair to you. But if savings accounts start offering an even better interest return next year, you’re stuck at lower revenue. That’s the problem with long-term deposits.
How about online banking?
Shopping around before choosing the most suitable bank for you seems like a decent idea. You should check what kind of incentives, refund options, and customer care service each ADI offers.
Online/direct banking establishments can present to you a higher interest rate. Credit unions – being non-profit organizations – can also give you better investment options.
Invest your interest
Some banking establishments offer you compound interest. It’s like a new interest you get on the previous one. It would help if you researched the frequency of compound interest’s accumulation by your bank.
Daily collection is common, but some financial institutions prefer to compound monthly. It can grow your money by creating a snowball effect (small stuff gradually builds upon itself to become more extensive).
Does a term deposit even benefit you?
Sometimes, a term deposit isn’t even in your best interests. You should research the pros and cons of current and savings accounts as well. If they give you better investment opportunities, don’t deposit your money temporarily.
Therefore, below you can find a comparison of term deposit with a savings account. The list of advantages of a term deposit will help you decide how you want to spend your money.
Term deposit and savings account
- They offer a low deposit amount (varies with banks). But you can’t withdraw your money before the expiration of maturity without paying the penalty.
- It guarantees a fixed interest rate. Savings accounts, however, are subject to the unpredictable financial situations of the global market.
- They provide a secure and risk-free investment opportunity—those who want to place their cash at a safe location and then forget about it.
- They allow short-term (less than a year) or long-term (e.g., five years) ages of maturity. They also don’t allow extra deposits before the termination of maturity.
- It won’t matter to you if the interest rate decreases because you’ve been promised a fixed rate. Accordingly, a rising interest rate won’t affect you either.
What to do after maturity expires?
- You can do nothing, and the money will be invested in another term deposit. Your bank will apply the same terms and conditions, and you’ll receive the same interest rate.
- You can place your cash into another term deposit. You can change the term of maturity and go for a higher interest rate. You can even change banks after the maturity is over.
- You can withdraw your money and put it in a savings account. This strategy involves more risks, but if the market’s good, it’s worth it. Savings accounts have different advantages.
- You can withdraw the money and invest it in silver, real estate or share market.
- You can extract a little amount of money to invest and leave the rest in your account.
In the end, let’s summarize the reasons why you should open a term deposit. There are three main factors you must keep in mind. How long can you invest your money? The investment timeframe will decide how many months/years you can invest your cash. What is the limit to your investment? Where can you get the highest interest return?
These simple queries will help you reach a productive financial decision. Therefore, the secure and risk-free term deposit that offers a preset interest rate is a promising investment. A few thousand dollars placed for a year make for an attractive income opportunity.
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