Setting SMART financial goals means being Specific, Measurable, Achievable, Realistic, and Time-bound with your savings plans. It’s a method to stay focused and organised when working toward certain financial goals, for example, a house deposit or even retirement. Term deposits neatly fit into the SMART financial goals framework, offering fixed returns over a set period, a chance to lock in your savings and to help keep you disciplined.
Term deposits are specific
Term deposits can be an ideal savings product for specific financial goals because they provide certainty. When you invest in a term deposit, you know exactly how much interest you’ll earn over a set period, making it easier to plan for something specific.
For example, if your goal is to save $10,000 for a car down payment, you can choose a term deposit that aligns with your timeline and helps you boost your savings for your down payment. This way, you’re not only saving toward a specific amount but also working with a clear timeline to achieve it.
Term deposits are measurable
Tracking your progress is essential when you’re working toward any financial goal, and term deposits make that easy. With a fixed interest rate and a defined term length, you know exactly how much your savings will grow over time, and when that money will be ready for you to access. This may make term deposits a suitable savings product for people who want to see clear, measurable progress without worrying about market fluctuations.
Term deposits are achievable
One of the biggest challenges with saving money is resisting the temptation to dip into your savings. Term deposits can help you overcome this temptation by locking your money away, making it more achievable to stay on track.
Once your money is locked into a term deposit account, you can’t touch this money without potentially facing additional costs if you seek to break early (unless you’re facing proven financial hardship), which helps you stay disciplined.
Plus, the minimum amount you need to open a term deposit can be as low as $1,000, making it achievable for most savers.
Other benefits of term deposits that may help you achieve your financial goals include
● Potentially higher rates. Term deposits often have better interest rates than other savings products, especially for longer terms.
● Government protection. In Australia, deposits with authorised deposit-taking institutions (ADIs) are protected by the government up to $250,000 per account holder, per ADI.
● No ongoing fees. Term deposits don’t usually have account fees (though early withdrawals may come with an early break cost or other penalties).
● Less stringent bonus rate conditions. Unlike some high-interest savings accounts that offer bonus rates subject to specific qualifying criteria, term deposits don’t require you to meet extra conditions to earn the agreed interest rate, noting that some term deposits do also offer bonus rates simply for rolling over your principal, or principal and interest, at maturity.
Term deposits are realistic
Term deposits are a realistic option for many savers. They don’t require much ongoing attention or management, which means once you’ve set one up, you’ll be reminded before maturity about what to do with your money. This simplicity may make them a good fit for people who prefer a less proactive approach to their savings.
Term deposits are time-bound
Having a clear time frame is important when setting financial goals. Term deposits have a defined start and end date, which may make them ideal for time-bound goals (such as saving for a wedding or holiday).
When you open a term deposit, you choose how long your money will be locked away, so you may choose a term deposit that matures around the time you’ll need the money. The set end date can give you peace of mind knowing your savings will be available when you need them, and because the funds are locked away, you will be less tempted to spend the money before reaching your goal.
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