Deposit accounts come in all shapes and sizes. They are pretty straightforward but here are some of the things that should be considered before proceeding:
- How long am I prepared to put my money away for?
- Will I have access to my funds during the term of the account?
- Am I covered under a Deposit Guarantee Scheme?
- Am I exempt from DIRT?
Rates on deposit accounts can be difficult to compare when they are over different terms. For example, how do you know if a rate of 1.66% over 18 months is more or less competitive than a rate of 1.28% over 14 months? The answer is to always check the AER. This is the Annual Equivalent Return and shows you how much the account would earn if the rate is broken down to show how much is paid annually. In the example given above the answer would be that they are equal in terms of return, they both have an AER of 1.1%.
So, all things being equal in terms of return which one should you invest in? This will depend on your individual circumstances as well as market conditions. If for example you know you don’t need access to the money, you might choose to secure the rate for a longer period, in which case you might go for the 18 Month Fixed Term Account. However if you knew rates were likely to start increasing in the next year, you might choose to invest in the 14 Month Fixed Term Account in the hope that you could secure a higher rate when this matures.