Fixed deposit also known as Term deposit is the most common money market instrument known to bank customers. it is also the most marketed investment instrument by bank staff, because unlike Treasury bills the funds stays in the banks’ books. Fixed deposit is a great way to save money because of the guaranteed income it offers.
Terms or tenure varies from 30 days to 365 days and may be longer with some banks. Some banks will allow you add funds during the tenure while other may not but allows you have multiple fixed deposit accounts. Most banks will allow minimum investment of N100,000 while it may be higher in some banks.
Here are some of the mistakes you should avoid when investing in Term deposit
Avoid relying on advice of one bank for interest rate.
Banks offers competitive rates. Shopping around will give you an idea of what bank is offering higher rates at a particular time.
Fixed deposit rates in banks typically depend on:
- Tenure (the longer the tenure the higher the interest rate);
- The bank’s desperate for funds at the time and
- Rates are always higher in banks during financial reporting periods (quarter ends, half year and year end).
Avoid having one fixed deposit account or accounts that are maturing at the same time.
Because your bank will penalize you if you choose to terminate your fixed deposit before it matures. It is advisable that you have multiple fixed deposit accounts that will not mature at the same time. This will allow you have access to your funds when needed without loosing part of your interest. Bank penalty is usually a chunk of the interest accruable to you and I am sure you will not want to loose that.
Avoid forgetting your term deposit maturity date.
It is very important that you know your fixed deposit maturity date at heart. This is to avoid redundant funds or rollover of your money without your consent.
Most banks have the policy of the rebooking your fixed deposit after it matures for the same tenure and same rate if there are no further instruction from you. While others will drop your money in your booking account. So always have the maturity date of your investment handy so you don’t lose interest or have investment with non competitive terms.
Avoid very long tenures
Long tenured investment means you may not be able to take another investment decision until your investment matures.
Just imagine that there is a sudden rise in interest rate and you have tied down your fund for a long term or you need funds to take advantage of a business opportunity with higher yield and you cannot call up your long tenured term deposit investment because the bank will penalize you.