Why you might choose a term deposit for your business
Taking out a term deposit can be a good way to manage any surplus funds you have accrued through your business. However, there are a few things worth considering before choosing this simple investment option.
When you take out a term deposit:
With a term deposit – such as a Westpac Business Term Deposit1 – you’ll know in advance how much interest you’ll earn. This gives you the reassurance of knowing exactly what the return on your investment will be for your business.
If market conditions change and interest rates drop, you’ll still benefit from the interest rate fixed at the start of the term (though conversely, you won’t enjoy the extra benefit of an interest rate rise).
Additional benefits of investing surplus cash into a Westpac Business Term Deposit include:
Term deposits are generally considered a safe investment:
Term deposits can also help you resist the temptation to dip into surplus business income. Instead, it will be making you money through the interest accrued.
There are three key things you should consider before taking out a term deposit:
1. Will I need to access the cash?
You won’t be able to access your money during the term selected, without losing the full benefit of the fixed interest rate.
2. Will I need access to cash fast?
You’ll likely have to give notice to withdraw – generally 31 days for a Westpac Business Term Deposit – so it’s important to consider carefully if your business may need immediate access to the cash during the length of your proposed term deposit.
3. Have I chosen the right time?
Changes in interest rates can sometimes go against you. If interest rates rise once you’ve locked your money into a term deposit, you won’t be able to benefit from the higher interest rate.
The length of time you choose to move funds into a term deposit varies by provider. Generally, the longer the length of the term, the higher the interest rate, although this isn’t always the case.
For example, Westpac Business Term Deposits are divided into three tiers:
The amount of interest paid also varies by provider. With a Westpac Business Term Deposit you can choose to have the interest paid monthly, annually or at maturity (when the term ends).
The frequency you have interest paid is likely to impact the interest rate offered.
When, for example, a Westpac Business Term Deposit matures, you can generally reinvest it into a new term deposit (with or without the interest earned), reinvest a different amount, or have the money deposited back to you.
If you’re set up for online banking, this can generally all be done without the need to visit a branch.
As with all investments, it’s important to consider your own situation. Here are some factors to weigh up:
Do you have a specific goal in mind such as saving for equipment, inventory or new premises, or do you want to earn an income from the interest you’ll earn? These factors will also influence what term would be appropriate for your needs.
If you’ve got some money put away in a savings account or have surplus cash, a term deposit could be a form of ‘forced saving’. In most cases, you won’t be able to access the money until the end of the term, without losing the full benefit of the fixed interest rate. On the flipside though, you’ll have to be sure you won’t need to access the money during the term.
Depending on market conditions, interest rates may be higher or lower when compared to other savings products. If interest rates are up, you could benefit from locking in a higher interest rate. Once you’ve selected a term you won’t be able to benefit should interest rates go even higher, but you’ll be protected for the length of the term if interest rates go down.
In the case of Westpac, once you’ve visited our Business Term Deposit page and selected the term and the amount you want to put away, setting up the term deposit can be as easy as applying online (if you are eligible to do so). It should take less than ten minutes1.
So you won’t have to head into a branch if you don’t want to, or contact your relationship manager.
Also, you may be eligible for a bonus rate on top of the standard rates. You can check if you’re eligible by signing into Westpac Live Online Banking1.
A Business Term Deposit gives you the certainty of a secure investment that’s not affected by the ups and downs of the market. So, it may be a good savings option if you are confident about not needing to access your funds for a given period.
1. Westpac’s products are subject to terms, conditions, fees and charges; and certain criteria may apply. Before making a decision, read the disclosure documents for your selected product or service, including the Product Disclosure Statement and T&Cs for Westpac Business Term Deposits and Westpac Live Online Banking, by clicking the above links; and consider if the product is right for you.
The information in this article is general in nature and does not take your objectives, financial situation or needs into account. Consider its appropriateness to these factors; and we recommend you seek independent professional advice about your specific circumstances before making any decisions.