Bank's Term Deposits offer a fixed interest rate but carry risks like bank failure and vulnerability to inflation. While rare, bank failures can happen, as demonstrated by Silicon Valley Bank's recent collapse in the US. Moreover, low returns and inflation can erode your investment. Consult ANZ or a financial advisor for specific information on these risks.
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“Hi everyone, Does anyone uses the Term Deposit options from ANZ. Reading the small prints I realised the principal is not guaranteed ( you can lose your money) I asked someone working for ANZ what is the investment ? where is the money going ? I was told that it is not in shares and not in government bonds. Does anyone know where the money is going and what is the real risk ? Thank you,”
(Original question on Reddit)
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The exact details of how ANZ uses the money from term deposits are not publicly disclosed.
It’s important to have a clear understanding of any investment you’re considering, including term deposits. Like other banks, ANZ offers term deposits as a form of fixed-term savings account.
ANZ Term Deposits are a type of low-risk investment that provides a fixed rate of interest over a specified investment term. The bank uses the money you deposit for its various financial activities. While it’s not directly invested in shares or government bonds, it could be used by the bank in various ways, such as providing loans to other customers or investing by the bank themselves.
However, like all investments, term deposits do carry some level of risk. Typically, term deposits are considered safe because banks are highly regulated institutions, but there are scenarios where you could potentially lose your investment. Here are some risks:
Risk One: Bank Failure
If the bank were to go bankrupt, your deposit could be at risk of being partially or completely frozen. It’s important to note that such scenarios are extremely rare, especially for well-established banks like ANZ.
A recent example from the US can illustrate this point. In March 2023, Silicon Valley Bank, which catered to the tech industry for three decades, collapsed after suffering from an old-fashioned bank run. The bank had been hit hard by a rough patch for technology companies, and the Federal Reserve’s aggressive plan to increase interest rates to combat inflation compounded its problems.
The bank held billions of dollars worth of Treasuries and other bonds, which lost value as market interest rates rose. This incident highlights that while bank failures are rare, they can and do happen. Understanding the risks associated with any investment, including term deposits, is important.
Risk Two: Vulnerability to Inflation
The fixed rate of return on term deposits can leave your investment vulnerable to erosion due to inflation, particularly if inflation increases rapidly. Additionally, term deposits often offer low returns, especially when taxes and inflation are factored in. This means over the long term, other types of investments, such as KiwiSaver, real estate, or managed funds, may outperform term deposits.
If you have more specific questions about the risks associated with ANZ Term Deposits, it is recommended to reach out to ANZ directly. Always ensure you thoroughly read and understand the terms and conditions of any investment product before committing your money. Consider your financial goals, risk tolerance, and investment horizon when making investment decisions.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The information in this post is only general in nature and is not personalised financial advice. Please contact us if you want financial advice.
