What are Short Term Deposit Rates?

The short term deposit account is a sneaky little financial product which has flown in under the radar and as a result, is often under appreciated. Short term deposits are often lumped together with long term deposits when people think about bank deposit products, but the accounts are very different, not least of all because of the interest rates you earn. If you know how to reveal the true benefits of a short term deposit rate, then you can take advantage of this unique investment opportunity.

The Short Term Deposit Rate Difference

The interest rates on term deposit accounts are calculated depending on the amount you are investing, and how long you are investing it for. Therefore, there is a huge difference between the short and long term deposit rates, but there are more differences to spot than just in the figures:

• All term deposit rates are calculated on a per annum basis. The p.a. you see after each term deposit interest rate offer is the major difference between a short term deposit rate. A short term deposit is considered to be less than one year, and usually you can choose any term you like , greater than one month. As a result, the short term deposit interest rate on a six month investment for example, may be 4.00% p.a. However, the rate you are actually going to earn over the term of your six month investment is 2.00% because you are investing for half a year. Term deposit interest rates are calculated daily, and to get the daily interest rate, the banks divide their per annum interest rate by 365, however, if you’re not investing for 365 days or more, then you’re not earning the full rate you see listed for your term.
• Short term deposit rates are often lower. One of the banks’ motivations in offering you high interest rates for depositing your funds with them is to encourage you to do so, they are not just in it to help you with your finances…shhh. the banks rely on your deposits to strengthen their credit rating, and fund their own investments and so they want you to invest for as long as possible, as a result the best rates are usually on the longer terms, not the shorter ones.
• Short term deposit rates are often on sale. The best way to encourage new customers is to show them what you’ve got and this is why banks often give away great short term deposit rates, rates which are sometimes higher than their long term rates. The banks are doing this to promote their term deposit products, and let you try a term deposit for just a few months, hoping you’ll get hooked on investing and roll over your investment into a longer term next time. Of course there is nothing that says you can’t choose another short term deposit the next time, or an new type of investment all together.

What Do Short Term Deposit Rates Do Best?

Due to the often lower interest rates and the per annum rates calculated on terms less than one year, a short term deposit account is not the right option for all term deposit savers or investors. However, a short term deposit is good for:

• Keeping a lump sum safe. If you have a deposit amount which you need to hold onto for a few months then a short term deposit can be the perfect place to put it. Perhaps your business has received payment from a large invoice or income from a promotional event and you want to make sure you look like you’re keeping the funds working, when you’re really just deciding how best to invest them in the long term, or put them back into the business, a short term deposit will earn you interest returns on your lump sum, and keep it safe from being spent.
• A secure bank investment. Perhaps you are choosing a short term deposit because your budget only allows you to invest your savings for a few months. Well a short term deposit rate can still earn you interest returns and grow your balance, and when your investment matures, you may be able to afford to invest more the next time.
• Take advantage of a rising interest rate cycle. The official interest rates will always run on a cycle, they’re either on their way up or on their way down, there is never going to be a time that official rates are going to be fixed, they’re always fluid. With a short term deposit, you can take advantage of this fluidness because you are not locked into a long term when then is likely to be a lot of interest rate movement. Currently official interest rates are on the rise, and choosing a short term deposit rate allows you to take advantage of that upward movement now, and again when your term matures and rates are still on the rise.

To compare short term deposit rates and find an account with the features you need for your current investment, view our comparison tables here. You can consider all the important details of a short term deposit account, before following our secure link to find out more, or start an online application today to get your investments on the move now, time is short!