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Rate Rundown - An Introduction into Term Deposit Accounts

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You are year five into a ten-year plan to save for that rustic cottage near the ocean, or better yet, you save almost enough to put a hefty down payment on that cute little trendy condo in the city. However, you are short by some thousands of dollars - okay, maybe the whole sum. To meet your financial goals, you have a number of options.

You could invest in the penny stocks and hope to make the down payment before year ten. You could also invest in the dinar trade, but it will be sometime before you see a return on that investment. A better idea might be to invest in a term deposit account, commonly called a certificate of deposit (CD).

Continue reading to learn more about term deposit accounts and their rates, so that you can make the right decision

What Are Term Deposit Accounts?

Term deposit accounts are a type of savings that allow investors to earn a little more interest on their principal balance than with passbook accounts. Those who open these account are people who usually have a financial goal in mind, whether it is saving for a house, car, or college education. Unlike other investment accounts, term deposit rates are usually fixed and depend on a few factors.

The major types of term deposit accounts are the short-term, long-term and ladder accounts. The short-term deposits last from as little as one year to about five and long-term deposits mature in five years or longer depending on the fund stipulations. Ladder funds allow investors to deposit one large sum in one account but allow for the individual to stratify maturity dates, so the money is not tied up for years.

The benefits to these accounts are that accrued interest can be paid out quarterly, monthly or yearly depending on the account. While they do not yield more than other investment types, they are a very safe way to put away money to use for financial goals. Conversely, the drawbacks are that there is a penalty for early withdrawal, and some of the minimum balance requirements can be quite high.

How Do The Rates Compare With Passbook Accounts?

The reason that term deposits are a good way to save money is that they typically yield more in interest than your standard passbook account. Most often, the rates for these types of accounts are fixed depending on the principal placed in the account and maturity date. An account with a longer term will generally earn more money than a shorter one simply because interest accrues over a longer interval.

How Can Guarantee A Good Rate?

The interest rate is going to depend on a few factors, namely the principal balance and the time. Outside factors determining the rate include personal financial goals. For example, while some rates might be higher, if your goals require you invest in a short-term fund, you might not be able to take advantage of the higher rate.

However, in searching for a fund with a competitive rate, go to your bank first to see the various types of term deposits available. If possible, get a copy of a rate sheet, and use this as a reference point in determining the best rate at other institutions. Another great place to look when searching for term deposit accounts is online institutions because they tend to offer higher rates than traditional financial institutions. Finally, because the rates on these accounts do not change, you might possibly miss out on earnings when rates are higher. Ultimately, you want to make sure that a term deposit account is really appropriate for your financial situation because once opening the account you cannot remove the money without penalty.

Getting The Best Rate

Most of what determines your interest rate on these types of accounts relate to external factors, i.e. market influences and fund stipulations. However, you do have autonomy in choosing from a variety of funds, some requiring smaller principal balances than others. The best rate, though, will depend on the fund that most appropriately meets your financial goals.

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