Thinking of Going with a 5.10% Term Deposit for 5 Years, Easy but Smart Move?

borgainerz on 10/05/2024 - 13:46

I'm pretty confident betting the Interest Rates are going to stay put or start decreasing over the next 12 months, so I was thinking to put $30K I just got to a Judo Bank Term Deposit at 5.10% for 5 years.

I don't need this money for the next 5 years and am hesitating between term deposit at a fixed rate (judo currently doing 5.10%) before they start lowering the rates, or eventually starting an VAS / VGS Vanguarf ETF but I know nothing about it so it will require some time from me to learn the basics.

I think it is a good time (we're are close the the point of curve reversal regarding the interest rates)

Thanks for you thoughts.

Financial Term Deposit

Comments

  • Sinnerator on 12/05/2024 - 08:34
    -1

    banks never lock anything down in favour of the customer
    you are better off shorter terms and switching when a better deal pops up

  • V2L on 12/05/2024 - 09:42
    +1

    how old are you? if you aren't retiring any time soon and have a 5 year horizon then there's potential for much better gains through index funds or crypto depending on your risk appetite

  • SoapyWooder on 12/05/2024 - 10:36

    What's the cheapest fee sp500 ETF, please help?

  • liongalahad on 12/05/2024 - 10:48

    Definitely not a good idea. Invest in index funds instead.

  • soggypotato on 12/05/2024 - 23:38

    If you don't need the money then just do it for fun and for the experience

  • Cluster on 13/05/2024 - 00:05
    +1

    I locked in a 7.5% 5 year term deposit at the start of the GFC with Rabobank. As central banks kept cutting interest rates my smile grew wider. It is possible to beat the so called smart people with all the computers. Just look at how many interest rate rise predictions the CBA got wrong. All throughout 2022 they kept saying maybe 1 or 2 more at most. Wrong again, and again.

    Is locking in 5.1% a smart move now? I honestly don't know.

    • borgainerz on 13/05/2024 - 09:55

      Nice one, I think you got the highest offer

    • Ave Maria on 14/08/2024 - 17:34

      Did the same (7.5% for 5 years in 2010) I even got an 8% 5 year ladder TD ( interest added to TD each year until maturity) with Citibank at the same time.
      Citibank was the only bank offerring ladder TDs, no other bank offers that product in Australia )oe ever will again as NAB took over Citi).

      That was for my SMSF, long time ahead from retirement so liquidity was not an issue. Best investment decision I ever made.

      We would never likely ever see such high rates again ( as politics have taken over the decision making from the RBA) althoun in NZ Rabo offers 6.10% TDs

  • Prosp24 on 13/05/2024 - 01:23

    Not great, as interest earnings would be taxed at your marginal tax rate.

    Investment options that utilise capital gains tax discount should provide better post-tax outcomes. Everyone's indivudal financial situation will be differ.

  • Hangryuman on 13/05/2024 - 17:07

    5.1%pa fixed for 5 years - with break costs if you withdraw earlier - not recommended.

    I have 3 ETFs - which my IRR spreadsheet shows as having returned 7%, 19% and 22%pa last financial year before tax (which I think you'd pay anyway on your 5.1% interest). On value alone, they have increased by 11%, 25% and 64% in the last 12 months.

    the rule of 72 for doubling - divide 72 by the growth rate to find how many years to double your money - indicates 22-5.1%=~17% more would double your money in 72/17 = a bit over 4 years.

    So - in 4 years time would you rather have double your money - or not ?

    • kiitos on 16/05/2024 - 19:24

      Which ETFs?

  • cupcake on 31/05/2024 - 13:38

    Yes.

  • deandownunder on 01/06/2024 - 09:12

    When this question was first asked the comment posted on 10th May was that interest rates were going to remain static or go lower. How times change in less than a month. Blind Freddy can see the RBA is heading into a tightening phase so money invested for 5 years @ 5% would not give the best return. I would only be investing on a 12 months max.

  • Ave Maria on 14/08/2024 - 17:15

    Rabobank Term Deposit rates just took a skydive - the current TD rates not even worth a bother to look at.

    Better leave the money on at call savings account - good optons from 5.4% to 5.55% availabe wth ME bank, ING, UBANK, AMP and suprisingly for now with Rabobank

    Term—-Maturity—Month-4Month-6Month—Annual
    1 months 2.00%
    3 months 4.85%
    6 months 4.80%
    9 months 4.70%
    1 years — N/A —4.51%—4.52%—4.55%—4.60%
    2 years — N/A —4.17%—4.18%—4.21%—4.25%
    3 years — N/A —4.17%—4.18%—4.21%—4.25%
    4 years — N/A —4.41%—4.43%—4.45%—4.50%
    5 years — N/A —4.51%—4.52%—4.55%—4.60%

  • Ave Maria on 05/07/2025 - 13:13

    One year later, 5% monthly interest for 5 years sounds good. The Judo bank 5 year rate was 4.45% until 2 days ago. Now it is 4.35% & will drop further.
    If I wanted to stay in cash investments providing a monthly steady income without worrying about rate & market flanctuations I would consider the 5 year option (paying .10% less than the maturity/annual option). For terms over 1 year, Judo Bank pays interest annualy NOT on maturity. I am not aware of a compounding option, other than choosing to reinvest capital + interest on maturity. The interest is paid out to your nominated account, either monthly or annualy. The only bank that offered that oprion (called a ladder Term Deposit) was Citibank, many years ago, where the interest was added back to the Term Deposit (and compounded). Australian banks do not like offering compounding interest on Term Deposits, if anyone still does it would not be the norm. On a $100K Term deposit a 1% difference is $1K annualy or about $83 monthy. If the income drop is not significant then do not lock for 5 years. If interest rates are heading down to near zero again, then lock as soon as you can (I did just that early last week at 4.35% monthly for half of my SMSF funds). I predict a repeat of the drop cycle experienced from 2011 to 2020, especially if recession takes over.

    Note - I would still not consider locking personal funds into long term term deposits as on call accounts are still by far a better option. However for an SMSF the options are limited & term deposits generallly offer better rate options than on call accounts. I added a comparison table for some ccurrent SMSF products below (not a comprehensive list - some better products are no longer on offer and not listed below).

    Rates & Products on offer as of 5/7/2025 - likely to change as early as next week. As it turns out the below is usefull to me as I constantly have to make investment decisions, so investing long term helps a bit on not having to worry for a few years - set & forget. I hope it is also useful to other SMSF "managers".

    Banking Institution SMSF Product Rate Notes
    Great Southern Bank Future Saver 4.35% Requires $250 monthly balance increase, Up to $500K then 3%
    Great Southern Bank Every Day Saver 3.80% No conditions, up to $750K then 0%
    Macquarie Bank Cash Accelerator 4.15% No conditions, up to $2 Million, then 3.65% to $10 Million
    Rabobank Premium Saver 4.00% Requires $200 monthly balance increase, Up to $250K then 3%
    Rabobank 31 Day Notice 3.55% Up to $250K then 2.55%
    Rabobank 60 Day Notice 3.65% Up to $250K then 2.65%
    Rabobank 90 Day Notice 3.75% Up to $250K then 2.75%
    Rabobank HISA 3.05% Ongoing Rate, up to $250K then 2.30%
    Rabobank HISA 4.50% New Customer 4 Month Rate, up to $250K then 0%
    ANZ V2 Plus 3.75% Intermediary Rate, No conditions
    Judo Bank 3 Month TD 4.30% Paid Annualy, 4.20% for Monthly Interest - Rate locked on open day - 10 days to fund
    Judo Bank 6 Month TD 4.40% Paid Annualy, 4.30% for Monthly Interest - Rate locked on open day - 10 days to fund
    Judo Bank 9 Month TD 4.20% Paid Annualy, 4.10% for Monthly Interest - Rate locked on open day - 10 days to fund
    Judo Bank 1 Year TD 4.10% Paid Annualy, 4.00% for Monthly Interest - Rate locked on open day - 10 days to fund
    Judo Bank 2,3 Year TD 4.00% Paid Annualy, 3.90% for Monthly Interest - Rate locked on open day -10 days to fund
    Judo Bank 4 Year TD 4.25% Paid Annualy, 4.15% for Monthly Interest - Rate locked on open day -10 days to fund
    Judo Bank 5 Year TD 4.35% Paid Annualy, 4.25% for Monthly Interest - Rate locked on open day -10 days to fund
    Rabobank 3 Month TD 4.15% Interest paid on Maturity
    Rabobank 6 Month TD 4.00% Interest paid on Maturity
    Rabobank 9 Month TD 3.90% Interest paid on Maturity
    Rabobank 1 Year TD 3.85% Paid Annualy, 3.70% for Monthly Interest
    Rabobank 2 Year TD 3.70% Paid Annualy, 3.55% for Monthly Interest
    Rabobank 3 Year TD 3.80% Paid Annualy, 3.65% for Monthly Interest
    Rabobank 4 Year TD 4.25% Paid Annualy, 4.10% for Monthly Interest
    Rabobank 5 Year TD 4.40% Paid Annualy, 4.25% for Monthly Interest

    Note: Rabobank offers a .10% extra loyalty bonus for automatic renewals (for the renewed term for same amount or above).
    Judobank offers an optional loyalty bonus for Personal Term Deposits only (!)

    • BigBirdy on 05/07/2025 - 14:44

      My industry super returned 10% in 2024/25, a fairly volatile year. Each to their own I suppose

      • Ave Maria on 05/07/2025 - 18:34

        Absolutely right "each to their own" needs. My self managed SMSF returned a net 9% for 2025 and I did not pay any commisions or fixed management % fees on my super balance that you may have to pay regadless of whether there was a negative return in a bad year. You have to look at the bigger picture. I also sleep better at night knowing that I have full control over my assets and where I invest. I am already retired and drawing a pension from my SMSF so that is also a consideration on how I invest and what I expect from returns (sometimes less is better).

        • BigBirdy on 05/07/2025 - 18:38

          Sounds like you’ve been reading too much spin from the SMSF spruikers

          • Ave Maria on 05/07/2025 - 18:45

            @BigBirdy: I have been running my SMSF for over 15 years and that was entirely my decision to go that way after being burned by letting other manage my super both overseas (the UK) and in Australia. Nobody influenced my decision to go the SMSF way and it was a good decision to make. My partner's super was eroded in "Industry Standard" supers, charging all sorts of fees and services not needed before also moving into our SMSF.

            SMSF is not for everyone and it is entirerly a personal decision to make.

        • Nom on 06/07/2025 - 12:04

          I also sleep better at night knowing that I have full control over my assets and where I invest.

          The obvious thing to point out here is that the super company investors are generally going to be a lot better at investing than you are. They have literal rooms full of people who do this day in and day out as their full time job.

          Most individual users can't compete with that.

          • Ave Maria on 07/07/2025 - 13:45

            @Nom: and it only takes one of those people to do one dodgy deal & loose all you money - as long as my money is safe & under my control I do not care about how much more I could be earning and I am talking from past experience spanning over 30 years - as finance companies keeps tellin everyone "past performance is not a quaranty for future gains (or losses)" - as long as you are happy with what you are doing I am happy with what I am doing & I will not suggest to anyone to do what I do or what they are doing is wrong. I am happy for everyone else making tons of money in the stockmarket, property or anything else -:)

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