A term deposit is a cash investment held at a financial institution. Your money is invested for an agreed rate of interest over a fixed amount of time, or term. Term deposits can be invested into a bank, building society or credit union. Term deposits are also known as Guaranteed Investment Certificates (GIC’s) or also as Guaranteed Investment Deposits (GID’s) from insurance companies
When the money is deposited, the customer understands that the money is there for the pre-determined period which usually ranges from 1 month to 5 years and the interest rate is guaranteed not to change for that nominated period of time. Typically, the money can only be withdrawn at the end of the period – or earlier with a penalty attached. Make sure to read the fine print and the contract as to whether the funds are redeemable or non-redeemable.
Term deposits are popular with investors who prefer capital security and a set return as opposed to the fluctuations of, say, the share market. Many investors also use term deposits as a part of their investment mix.
Term deposits must be carefully scrutinized to make sure that after taxes and inflation, you are not actually losing money from the “guarantee”.