We learned the hard truth about emergency funds in 2020. Overnight, many lost their jobs because of the government-mandated lockdowns. Although we have learned to live with Covid-19, we are unsure if our current freedom will last long, especially with Covid constantly evolving.
You may have heard from wealth management advisers that you need to establish an emergency fund. The bigger question is where should you put your money. Should you open a savings account or a term deposit?
Seasoned financial advisers believe that knowledge is the first step to financial freedom because you can make well-informed decisions. Today, we will talk about savings accounts and term deposits. With that said, let us start.
What Is Term Deposit?
According to wealth management advisers, term deposits are Australia's most popular investment products. It is a deposit that you cannot withdraw for a certain period or until a specific date. It means that you cannot touch your initial principle. If you cancel before the maturity date, you will be charged a hefty penalty.
The simplest way to describe a term deposit is a virtual lockup. It is like a virtual savings account. If you need your cash, you have to pay the penalty for early withdrawal.
Wealth management advisers say that it is safe. The only risk is that you pull out your money too early because you will be charged penalty fees. It is like a penalty for withdrawing your money.
A term deposit is very similar to a savings account. The significant difference is that a term deposit has a specific maturity date.
What Are Its Benefits?
According to wealth management advisers, there are many term deposits in Australia. It is becoming more popular than other investment mediums because it is flexible and relatively safe.
The key to making money with a term deposit is to choose the best term deposit. It will help if you match your investment horizon with the deposit term. For example, if you have the money for the next two years, you can choose a term deposit with a maturity of two years or less. However, if you have the money for the next ten years, you can choose a term deposit with a maturity of ten years or longer.
What Is a Savings Account?
A savings account is a financial product that allows you to save money in the bank. You can withdraw your money any time you want. However, you will be charged a penalty of three to six months. Financial advisers say that it is safe with no risk of losing money.
What Are Its Benefits?
According to financial advisers, setting up your emergency fund in a savings account has many benefits. One of the benefits is that your money can easily be accessed when you need it. You can withdraw it anytime you want.
Conclusion
According to financial advisers, establishing an emergency fund is vital to your financial future. It gives you peace of mind because you can handle financial problems when they arise.
Having said that, where should you keep your emergency fund? A term deposit or a savings account?
You can achieve financial stability with the help of Swell Financial Planning. As a seasoned financial adviser in Queensland, I will be your partner in attaining such a goal. Book an appointment now so that we can start building your finances.
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