A fixed term investment, also known as a fixed term deposit, is when you put your money into an account, long or short term, and you cannot touch the money for a determined amount of time. Because your money is ‘locked away’, your interest rate is generally higher but it is also fixed. It is not going to go up and it is not going to go down. This means your fixed term investment is a safe investment. Even if the interest rates dip, your investment will keep growing.
There are several kinds of fixed term investment accounts available and you would need to sit with your banker, or financial investor, and choose the account that is suitable for you.
What are the different kinds of fixed term investments?
There are short fixed term investments and there are long fixed term investments. If you think you may need to access your money anytime soon, you would go for a short term investment. If you are secure in knowing you don’t need your money in the immediate future, then you go for a long term fixed investment. The advantage to a fixed term investment, enter short or long term, is that your interest rate does not change. You are protected from interest drops.
Are there disadvantages to a fixed term investment?
The only disadvantage is that if the interest rate increases, you do not get the increase. When you open your fixed term investment, you do it at a fixed and negotiated rate. This generally works to your advantage because it means no matter what happens in the money markets, your money will grow. Fixed term investments or deposits are low risk investments and secure. The only disadvantage is that you do not benefit if the interest rate changes for the better, but the advantages of security and steady growth outweigh this one disadvantage.
A fixed term investment can be extended
If your fixed term investment has reached maturity you can make the choice to continue investing or to withdraw your funds. It is a good idea to talk to your banker and look at your options. You may want to continue with the fixed term deposit, which is called a roll over investment, or you may choose to invest (or spend) your money elsewhere.
Discuss the details of your fixed term investment with your banker and make sure you are well aware of how and when you can withdraw your money. And always remember to negotiate the interest rates.