Debbie Duncan
Athena Cocoves
A term deposit is a pretty hands-off investment, but as it approaches maturity, you’ll need to give it some input. Whether maturity is in a few weeks, months or years, knowing what steps come next is crucial.
What happens when a term deposit matures?
When a term deposit matures, the bank automatically credits your account with the principal amount and interest earned. The bank will typically notify you before then to explain your options and tell you how much interest you’ve accrued. If you aren’t notified, the bank may automatically roll over your money into another term deposit with the same term. What happens next is up to you.
After opening a term deposit, note when it matures in your calendar. Keep an eye out for that date so you can plan your next steps early. At least 2 weeks before maturity, start researching current term deposit rates and options to get a strategy in place.
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Options for a term deposit at maturity
When your term deposit reaches maturity, you have a few options available to you:
- Automatic rollover. This is where your financial institution simply renews your term deposit. This is a common option, as it allows you to keep earning interest without worrying about making adjustments. The length of the term will stay the same, but the interest rate may not. So, you should still compare rates, as they have probably changed since you opened the original term deposit. After the bank completes the rollover, you’ll usually have a short cooling-off period to make last-minute adjustments. Use this time to decide whether the new term deposit’s interest rate is worth it.
- Renew the deposit yourself. You can renew this into the same term deposit account or a new one with a different length. At this time, you can also top-up your balance with additional funds so your savings can grow even more.
- Withdraw the funds. You can withdraw the principal deposit and interest earned or take some of the money and renew the rest. A popular strategy for partial withdrawal is to take out the accrued interest but reinvest the principal deposit.
- Transfer the money into a high-yield savings account. This is a good option if you want to keep earning interest but don’t need immediate access to your money. Savings accounts typically offer less interest, but they are more flexible, and you can usually access cash as needed.
- Invest your money in something else. You can put the funds towards another investment if you want a different way to increase savings or earn passive income. Make sure to research your options, as many different kinds of investments are available.
- Move the funds to a holding facility. Your financial institution may have a holding facility where you can transfer your funds. While in the holding facility, no notice period or fees will apply, and you can withdraw your funds anytime. That will give you flexibility and more time to decide what to do with your money.
Some options, like automatic rollover and holding facility placement, are only available with certain financial institutions. Check with your bank to learn more about your options.
How to choose the best strategy
Deciding what to do with your money once the term deposit has matured requires some planning. The best strategy for you depends on your financial goals and circumstances, but there are some general factors to consider.
- Your cash flow needs. A great start is asking yourself whether you’ll want the funds soon. A withdrawal makes sense if you need it for something specific, such as a big purchase or your emergency fund.
- Your savings goals. If you have a goal, such as saving for a house deposit, ensure your choice aligns with your timeline.
- Your risk tolerance. Term deposits are considered lower risk than other investment options. If you’re uncomfortable with risk, keeping your money in a term deposit likely makes sense. But, if you want to take on more risk, you may find better returns elsewhere. Talk to a financial adviser about investing with a broker or robo-adviser.
Once you’ve worked that out, you can make an informed decision about what to do when your term deposit matures.
Frequently asked questions about term deposit maturity
Yes, but you will likely face penalty fees, interest rate reductions, or both. Depending on your financial institution, you may need to wait before getting your funds.
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