When you invest in a term deposit, you typically get back your initial deposit amount plus the interest earned over the agreed term. The exact amount of money you receive depends on several key factors, including your initial deposit, the length of the term, the specific interest rate offered, and how often interest is paid.
Key Factors Influencing Your Earnings
The total return on your term deposit is directly influenced by:
- Principal Amount: The more money you deposit initially, the more interest you can earn, given the same rate.
- Term Length: Term deposits offer different interest rates based on how long you commit your funds. Generally, longer terms can sometimes offer higher rates, but this varies.
- Interest Rate: This is the percentage return on your deposit. Higher rates mean more earnings.
- Interest Payment Frequency: Some term deposits pay interest monthly, while others pay annually or upon maturity (at the end of the term). This choice can slightly affect the total return, especially for longer terms, due to compounding possibilities if you can reinvest monthly interest, though typically annual/maturity rates are slightly higher for the same term.
Current Term Deposit Rates
Interest rates for term deposits vary depending on the provider and the term length. Here are examples of rates for different terms and payment frequencies:
| Term Length | Interest Paid Monthly | Interest Paid Annually or at Maturity |
|---|---|---|
| 12 - 23 months | 3.95% | 4.00% |
| 24 - 35 months | 3.75% | 3.80% |
| 36 - 47 months | 3.55% | 3.60% |
| 48 - 59 months | 3.55% | 3.60% |
Rates are indicative and subject to change.
How to Calculate Your Potential Earnings
To calculate how much money you will get, you multiply your initial deposit by the annual interest rate (as a decimal) and then by the number of years. If the term is less than a year, you adjust accordingly.
Formula:
Total Earnings = Initial Deposit + (Initial Deposit × Annual Interest Rate × Term in Years)
Example:
Let's say you deposit $10,000 into a term deposit for 12 months (1 year) at an annual interest rate of 4.00% (paid at maturity).
- Calculate the interest earned:
$10,000 (Initial Deposit) × 0.04 (Annual Interest Rate) × 1 (Year) = $400 - Calculate the total money received:
$10,000 (Initial Deposit) + $400 (Interest Earned) = $10,400
So, from a $10,000 deposit over 12 months at 4.00%, you would get $10,400 back.
Benefits of Term Deposits
- Predictable Returns: You know the interest rate upfront, allowing you to calculate your exact earnings.
- Low Risk: Term deposits are generally considered very low-risk investments, as your principal is typically guaranteed.
Important Considerations
While term deposits offer guaranteed returns, it's essential to consider that your funds are locked in for the chosen term. Accessing your money before the maturity date may incur penalties or result in a loss of interest.
