Aug 26, 2022 / Money Tips
Did you know that your money is worth more today than the same amount of money in the future? It might seem like a counterintuitive concept, but your cash has kinetic energy—a compounding potential to make even more money when invested wisely.
Perhaps the most predictable way to unlock your money’s true earning power is through a term deposit. Here are 3 reasons why a term deposit makes smart financial sense, and can help you unleash your money’s hidden potential.
There are lots of ways to invest. You could put your money in the stock market or real estate market. You could even buy baseball cards or rare video games and store them in a closet for 50 years, hoping to hit on the next Honus Wagner or Super Mario Bros.
But nearly every investment carries some risk. The stock market or real estate market could take your money instead of make you money, leaving you with nothing but an expensive experience that was more learning than actual earning.
A term deposit, on the other hand, is a rare investment vehicle. It’s totally risk-free because it’s backed by the federal government. That means you can invest without having to worry about whether your money will go missing. It’s investing peace of mind with the promise of future return.
Speaking of future return, risk-free investing and guaranteed growth are two sides of the same term deposit coin. At the start of your deposit, your bank or credit union will give you an exact APY, depending on how long you want to keep your money in your deposit account (usually between 6 to 60 months). You can calculate, to the exact decimal point, how much you’ll earn at the end of your term.
Obviously, this isn’t the case for all investments. In the example of your video games and baseball cards (it’s okay to have hobbies), your “investments” could become worthless piles of dust-covered paper and plastic. It’s hard to predict future demand, which is why investing isn’t always for the financially faint of heart.
If you like earning potential with a little more predictability, a term deposit is a great way to earn extra money (often above average market earnings), with guaranteed growth you can count on at the end of your investment term.
As a general investing rule, high risk can lead to high reward, whereas low risk sometimes means low reward. But that’s not necessarily the case with term deposits.
If you do your homework and find the right term deposit, you can take double the earnings of the average market rate. Plus, if you have the luxury of putting more money away for a longer period of time, you can increase your investment (and earnings) incrementally.
That’s because your bank or credit union is willing to reward you for guaranteed access to your money. Everyday savings accounts are subject to everyday deposits and withdrawals, but a term deposit gives your financial institution a fixed widow to invest in other products, usually by helping fellow bank patrons or credit union members secure loans. Your willingness to withhold immediate access to your money can be valuable to both you and your bank or credit union.