Investing your money is important. Some people are more risk tolerant than others, depending on how they view investing, or perhaps even due to the stage of life that they are in. If you’re planning on going into a long term investment with a mutual fund, or RSP, the ups and downs of the market generally is OK, because you’re in it for the long haul. Even though it might dip one year over the next, generally speaking those markets gain in a long-term buying cycle.
Sometimes though, you’re looking for something more conservative, guaranteed, and short term, like one to five years. That’s where term deposits are the perfect fit for you. Perhaps you’re just a conservative investor period, and playing the stock market, even in mutual funds seem like too much of a roll of the dice. Pro-tip: gambling on craps in Vegas is not a recommended retirement savings plan.
Guaranteed with the 100% deposit guarantee at credit unions, term deposits operate almost like a savings account, but at a much higher rate, and locked in for a pre-determined time period.
Some other reasons why you may want to choose a term deposit over other investments may be that your child will be soon off to college or university and you need to have a specific time when that term deposit will end (usually annually on the anniversary date of when you started it).
Perhaps you’re planning another major purchase like a home, or even a wedding or a trip. You’ve been socking money away, but a savings account just isn’t going to hack it for earning interest. So, you take your hard-earned savings and you’re going to swap it into a term deposit, knowing that you’re going to take that trip to Italy in 2021 and you’d rather earn some interest, but still guaranteeing that your money will all be there, plus. So, when you need it for that trip, wedding or other major purchase you’ve been saving for, it’s there. Keep in mind, taking a short term loan for a trip in the future is also a good idea if you take those funds and invest them, and then you’re going to be on a more rigid schedule of repayment, as opposed to saving “whatever’s left after” bills are paid. We’re much better savers when the money isn’t sitting in your account to be spent… Keeping a handle on your day-to-day expenses can be a struggle. Set up an automatic funds transfer from your primary spending account, into that savings account that’s separated. When you hit a benchmark, (minimum term deposit at Encompass is $1,000) shift it to a term deposit, even for one year.
Lastly, if you’re nearing retirement and you don’t want to risk anything in the markets, a guaranteed term deposit is definitely the right choice for you. Even if you renew it every year on one-year short term deposits or every five until you need it, it’s locked in to make more interest at the same time, it’s secure for when you need it. Even if oil futures in the Middle East suddenly jump, or go in the tank, you’re not going to be kept up at night worrying about how the economy is going to affect your retirement.