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Managed Funds or term deposits?

February 1, 2021

If you want to make your money work hard for you consider a managed fund instead of a term deposit.

apples and oranges comparison

When it comes to their money, Kiwis tend to like savings accounts and term deposits because of the certainty that they offer. However as the economy faces uncertain times and banks cut interest rates, these options offer a pretty low return in comparison to other investment options like managed funds.

That’s not the only difference. Here’s four questions to explore the key differences between managed funds and term deposits.

1. How much are the returns?

With managed funds there is no fixed rate of return, which means there’s no cap on the potential return you might receive. On the flip side, there is also the risk that you may receive less than you originally invested. Long-term, managed funds usually generate greater returns than term deposits, although they can fluctuate over time.

With term deposits the returns of your investment are usually known up front, and it’s very unlikely you’ll receive less than you invested.

2. How flexible are the terms?

With Kiwi Wealth Managed Funds you to choose how much you want to invest (from as little as $100 to start with), how often you contribute and when you want to make a withdrawal – without penalties.

Term deposits offer less flexibility. You invest a set amount for an agreed term and might not be able to withdraw your money before then. If you are able to withdraw your money early, you could lose some or all of the interest.

3. How long do you have to invest?

With Kiwi Wealth Managed Funds you can invest your money for any timeframe with no minimum period. You should choose a fund with a risk profile that suits you and how long you want to invest for. As a general rule of thumb: Conservative (1-5 years), Balanced (5-10 years) and Growth (10+ years).

With a term deposit you choose how long you invest for upfront and are paid a fixed rate of interest for your chosen term.

4. Do you want all your eggs in one basket?

With Kiwi Wealth Managed Funds your investment is diversified by being invested across different assets, such as cash, fixed interest and international shares.

Term deposits are usually a single stand-alone investment. They aren’t as diversified as managed funds, but are generally a stable investment because you know what return you’ll receive.

Tags: Financial Wellness, Managed Funds

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