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If you’ve got a long-term savings goal in mind, a term deposit account may be right for you.
While you won’t have access to your money during this period, you may be able to get a higher rate of interest compared to a normal savings account.
In this article:
How does a term deposit account work?
What about other savings accounts?
How does a term deposit account differ from an investment?
What are the advantages and disadvantages of a term deposit account?
When you open a term deposit account, you agree to leave your money in the account for an agreed-upon period. In exchange, the bank pays you interest at a fixed rate. This means you’ll know exactly how much your savings will grow.
You can usually choose the duration of the term deposit to suit your savings goals. For example, with an HSBC Term Deposit Account, you can choose from 1 to 36 months. During this time you can’t add more funds, and if you need to withdraw funds, you may face fees.
Understanding how different savings accounts work can help you find the best one for your needs. Here’s a comparison.
| Feature | Savings | E-Saver | Term deposit |
|---|---|---|---|
| Access | High. Easy to deposit and withdraw. | High. Managed online. | Low. Funds locked for a fixed term. |
| Interest | Variable. | Variable, often higher than regular savings account. | Fixed. This provides steady returns. |
| Best for | Everyday savings, short-term goals. | Slightly better interest rate with easy access. | Long-term saving goals. |
| Feature | Access | Access |
|---|---|---|
| Savings | High. Easy to deposit and withdraw. | High. Easy to deposit and withdraw. |
| E-Saver | High. Managed online. | High. Managed online. |
| Term deposit | Low. Funds locked for a fixed term. | Low. Funds locked for a fixed term. |
| Feature | Interest | Interest |
| Savings | Variable. | Variable. |
| E-Saver | Variable, often higher than regular savings account. | Variable, often higher than regular savings account. |
| Term deposit | Fixed. This provides steady returns. | Fixed. This provides steady returns. |
| Feature | Best for | Best for |
| Savings | Everyday savings, short-term goals. | Everyday savings, short-term goals. |
| E-Saver | Slightly better interest rate with easy access. | Slightly better interest rate with easy access. |
| Term deposit | Long-term saving goals. | Long-term saving goals. |
Explore: Guide to savings accounts
If you have a lump sum that you want to grow, you may also be thinking about investing it. Here are some things to think about to decide which is best for you:
Explore: Investments
| Advantages | Disadvantages |
|---|---|
| Your savings will earn interest for a fixed amount of time, at a fixed rate, so you can see how it will grow. | If interest rates rise, your rate will remain the same for the duration of the agreed term. |
| You may be able to reinvest the interest or the initial amount you saved when the term deposit expires. | There may be a minimum deposit amount you need to open the account. |
| You’ll be discouraged from dipping into your savings, which can help reduce the temptation to do so. | There may be fees or charges for accessing your money early. |
| This is a minimal risk product as the interest rate is fixed. | You will not be able to add to your term deposit account once it’s opened. |
| Advantages | Your savings will earn interest for a fixed amount of time, at a fixed rate, so you can see how it will grow. | Your savings will earn interest for a fixed amount of time, at a fixed rate, so you can see how it will grow. |
|---|---|---|
| Disadvantages | If interest rates rise, your rate will remain the same for the duration of the agreed term. | If interest rates rise, your rate will remain the same for the duration of the agreed term. |
| Advantages | You may be able to reinvest the interest or the initial amount you saved when the term deposit expires. | You may be able to reinvest the interest or the initial amount you saved when the term deposit expires. |
| Disadvantages | There may be a minimum deposit amount you need to open the account. | There may be a minimum deposit amount you need to open the account. |
| Advantages | You’ll be discouraged from dipping into your savings, which can help reduce the temptation to do so. | You’ll be discouraged from dipping into your savings, which can help reduce the temptation to do so. |
| Disadvantages | There may be fees or charges for accessing your money early. | There may be fees or charges for accessing your money early. |
| Advantages | This is a minimal risk product as the interest rate is fixed. | This is a minimal risk product as the interest rate is fixed. |
| Disadvantages | You will not be able to add to your term deposit account once it’s opened. | You will not be able to add to your term deposit account once it’s opened. |
Before opening a term deposit account, it’s important to be aware of the terms and conditions and check you’re eligible before you apply. Note, you need to be an existing HSBC UAE customer to open an HSBC Term Deposit Account.
As your savings will be locked away for an agreed length of time, make sure you won’t need to access them. If you do, you may lose the interest.
Having another savings account that you can access without a fee for withdrawing money could help in case you need money unexpectedly. Creating a budget can give you a clearer picture of your spending and how much you’re able to save.
At the end of the term, known as the maturity, you may be able to reinvest the amount you saved plus the interest, or withdraw your money.
A term deposit account can be a useful tool if you have a specific, long-term savings goal, like a house deposit or wedding fund.
It offers the security of a fixed interest rate and guaranteed returns. It’s also a low-risk way of saving money. Because your money is locked away, you’re less likely to make impulse withdrawals, which helps you meet your financial goals.
Put your money to work, safe in the knowledge of how much interest it’s going to earn you.
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