Is Locking Your Money Away the Right Move?

There is always a temptation when you have some spare cash just sitting in your normal savings account. Australians regularly face a situation where they need to build savings and at the same time control their expenses. If you decide to become rich and limit your expenses, one good decision would be locking your funds in a special investment program.

The restriction of your access to the cash for a certain period might seem harsh. However, there are many bonuses to such a practice that cannot be provided by regular accounts. Once you give your funds to a financial institution or a bank for several months or years, you will receive much higher bonuses and interest rates.

Term Deposit

This type of financial arrangement allows earning a definite amount of profit on your initial lump sum in a relatively short time. For example, you can leave your money in a bank from one month up to five years. A bank such as ING Australia gives you a guaranteed amount of the profit during this period. You do not have to worry about the fluctuations of the exchange rate.

Superannuation Voluntary Contribution

While you are already receiving money from your employer as extra super contribution, you can add some of yours. These extra funds will not be available until you retire according to your preservation age. Superannuation voluntary contributions provide numerous advantages in terms of taxation according to Australian law.

Notice Savings Account

In order to withdraw money from your notice savings account, you will have to notify the bank beforehand. Normally, this period lasts from 31 to 90 days. The notice account offers higher interest rates in comparison with normal transactional ones, but you have some flexibility as well.

Highly Competitive Interest Rates

The reason why your interest rates will become higher is due to the fact that the bank will be sure that they can count on your money. Since you committed your cash in advance, the bank has a guarantee that they can give your money to another customer.

Saving Forcefully

Some people spend a lot of money on unnecessary items due to their poor self-control. In such cases, limiting yourself from accessing the money will lead to the continuous growth of the savings.

Tax Advantages

As already mentioned above, extra superannuation contributions allow you to receive considerable tax benefits. Your marginal income tax rate will normally be higher than the concessional super contribution.

Lack of Flexibility in Case of Emergency

You will not be able to withdraw your money right away in case of some problems. For instance, you might have an urgent need for money for car repair or any other unforeseen expenses.

Early Withdrawal Penalty Fee

In case if you will urgently need to withdraw money prior to the date of the expiration of the term deposit, you will have to pay for it.

Missed Opportunity

Interest rates might vary very frequently. While locking the money into a certain period of time, you will risk missing the opportunity to receive higher rates from your bank. During this period, your interest rate stays low while you are not free to use it elsewhere.

Whether you need to lock your money into investments or keep them for emergency usage depends on your individual situation. It will make sense to open a term deposit or to make extra voluntary super contributions if you already have an emergency fund. It is important to consider the upcoming costs and consult a financial advisor about the amount of money you can afford to set apart.