Do you think term deposits provide high returns for your savings?

Question

1. Do you think term deposits provide high returns for your savings?

2. What is a term deposit?

3. Can you please explain the question? I don't understand it.

Answer 1

Term deposits are accounts offered by financial institutions that require you to commit a minimum dollar amount for a specific period of time.  A certificate of deposit or CD is a term deposit.

Traditionally, term deposits pay higher returns than other accounts offered by financial institutions, such as checking, regular savings, and money market accounts.

However, compared to the returns you could theoretically achieve from the stock market, term deposits may provide only one-third to one-half the average annual return of stocks.

I say "theoretical" return because most investors panic when the market takes a downturn and sell their stocks or mutual fund shares.  Thus, they rarely achieve the returns they might have were they to stay invested in stocks or mutual funds.

The question asks your opinion of whether term accounts pay high returns compared to other investment options, such as stocks, bonds, and mutual funds.   The answer, I would say, is that they pay high returns compared to other options offered by traditional financial institutions, but they generally pay lower returns compared to stocks, mutual funds, and exchange traded funds (similar to mutual funds).  Term deposits sometimes pay higher returns than bonds; it all depends on inflation.