Australia has one of the best economies in the world, compared to other countries, especially since it bounced back after the wake of the pandemic. As a result, more and more investors are locking in on what the best ventures are that yield great results, and so far, one of the most prominent ones is high-term deposit rates. If you’re an investor and looking for ways to capitalize on this opportunity, then keep on reading to know more about their benefits.
It’s a good source of predictable income streams.
These days, it’s not enough to just rely on your day job; you have to find other streams of income, and availing yourself of Australian term deposit rates offers a reliable and predictable source of income. Upon deposit, investors can expect to receive a fixed interest payment at the end of the term, which can be handy to help them achieve certain financial goals such as:
- Emergency funds. Accidents and other unlikely events can happen in the blink of an eye, and at times like these, it’s best to have a robust emergency fund so you have an accessible source of funds to cover unexpected expenses like hospital bills or job losses.
- Future expenses funds. On top of emergencies, term deposits can also be used as part of your future expenses, like home renovations, car purchases, or even vacation costs.
- Retirement plans. Lastly, the most common reason why many investors and curious individuals avail themselves of high-term deposit rates is that it could be used as an additional fund for your retirement income. With these, you have enough funds to cover your living expenses because of the predictability of its return.
Boost your portfolio diversification.
When it comes to your assets and valuables, the adage “never put all your eggs in one basket” applies. Investing in stocks is a worthy cause as long as you’re knowledgeable about the market, but if you’re looking for a low-risk investment with a high yield, then all the more reason you should avail yourself of term deposits. Apart from providing valuable diversification in their portfolios, investors can also do the following:
- Decrease portfolio volatility. If there’s one thing you can expect about the economy, trust that it’s volatile. As such, it’s difficult to make investments given how it could be all for naught. This is where term deposits prove their usefulness since they offer a stable and predictable return. With these, investors can offset the potential volatility of their other assets.
- Improve risk-adjusted returns. Given that your other asset classes are affected by inflation increases, combining them with term deposits and other potential high-yielding assets boosts investors’ overall risk-adjusted returns.
- Maintain a balanced portfolio. As stated above, the economy is pretty volatile, so acquiring term deposits provides a stable ground for a portion of an investor’s capital. At least they can sleep at night knowing a significant portion of their assets would not be affected by the market’s volatile and fluctuating nature.
Hedge against increasing interest rates and inflation.
Finally, the most appealing benefit of locking in high Australian term deposit rates is to hedge it against the effects of inflation. With consumer prices consistently rising at an alarming pace in the last few decades, the purchasing power of savings is nullified. What savings account holders and investors alike can do is lock in a fixed interest rate for a certain term, enabling them to safeguard their funds and capital from the eroding influence of inflation.
It doesn’t stop there: locking in high interest rates provides them a certain degree of protection against potential future interest rate increases. Because the Reserve Bank of Australia (RBA) is still upholding its strict monetary tightening to combat inflation, term deposit rates skyrocketed. Be that as it may, the RBA already implemented a few increases in interest rates, and there’s a chance they will also do so in the future. Still, securing a term deposit for a predetermined period gives investors the guarantee that they can avoid the uncertainty of possible future rate hikes.
To wrap it up, acquiring high Australian deposit rates offers investors an interesting opportunity to protect a portion of their assets while also generating predictable. Furthermore, it diversifies its portfolio, which is a strategic way to cut losses. Using term deposits as a hedge against inflation and possible potential future interest rate hikes guarantees you a reliable stream of income and improves your portfolio’s stability. All in all, term deposits can help you achieve various financial goals, but make sure to consider certain factors like interest rate and term length before availing yourself of your term deposit.
