How does a business term deposit work?

If you’re looking to earn more interest on your savings, a term deposit may be a tempting option. It offers a higher rate of interest compared to a regular savings account, although you may not be able to withdraw the deposit without paying a penalty. 

If you’re a business owner and you can afford to set aside some of your cash, a term deposit may help to grow your cash reserve. However, you should make sure you won’t need the money in a rush to cover unforeseen business expenses. Also, consider comparing the business fixed-term deposit rates offered by different companies to get the best rate on the market.

How to find a suitable business fixed-term deposit

When looking for business term deposits, it is best to think of your financial situation and goals first. 

While you may be looking to earn a higher interest rate and grow your savings, there are usually limits on the amount you can invest and the duration of your deposit. These factors can affect your investment decision. For instance, with some term deposits, you may not be able to invest less than $10,000 or more than $250,000. Further, you’ll probably have to lock away this sum for anywhere from one month to three years or even more.

The business term deposit rates Australian companies offer will differ based on the amount you’re investing and for how long. The rule of thumb is that the longer you lock your savings away for, the higher the interest rate applicable to your deposit. For example, even the best business term deposit rates for a 6-month deposit may be significantly less than the interest rate your deposit might grow at over two years.

You could consider checking if the bank where you have your business savings account offers a term deposit, as you may get a preferentially higher interest rate from them. Opening a term deposit with the same bank could also simplify transferring the deposit back to your savings account once it matures or reaches the end of the term. However, you should compare other business term deposit rates and make sure you’re indeed getting a better rate. Also, check whether or not the company or bank offering the term deposit allows you to transfer the matured deposit to your business account at another bank. 

Why you should make a business term deposit rates comparison

Comparing different term deposits can tell you not just about the interest rates offered, but also about other features as well as terms and conditions. 

Ideally, term deposits should offer you convenience in terms of handling the deposit without requiring you to pay additional charges or fees. For instance, you may get a higher interest rate, but have to pay a heftier penalty for withdrawing money from the deposit before it matures. This can be particularly critical if you’re considering a deposit that’s locked for two years or more. 

Another factor to consider is the period over which the interest is compounded, or added to the deposit amount. For instance, a term deposit that compounds interest monthly would give you a higher return than one that compounds interest every six months. 

When comparing different term deposits, look at the minimum amount they require you to deposit as well as the maximum. Some companies could also offer you an auto rollover feature that reinvests the matured deposit into a further term deposit. This can be convenient and sometimes even earn you a loyalty bonus. You may want to check, through an online comparison, if investing your money in another term deposit might get you a better interest rate.

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