When you’re looking at term deposits vs savings accounts, it’s understandable that high interest rates will become a strong influencing factor. But, along with investigating what are the best interest rates for savings, have a good hard think about whether locking in an interest rate is actually more important for you. The overriding factor favouring term deposits – as opposed to online savings accounts – is the rate certainty term deposits give you. When you’re looking at what are the best interest rates for savings, remember that savings account interest rates can go up or down at any time.
Breaking down term deposits vs savings accounts
Term deposits are often popular with investors who prefer to receive a set return, rather than worrying about the possible daily fluctuations of the interest rates on-offer for online savings accounts, for example. Some investors may use term deposits as just a part of their mix of investments.
On the other hand, online savings accounts might be worth checking out if you don’t have a home loan, but still need access to your spare cash regularly or semi-regularly. Typically, with an online saver account, there are no restrictions on deposits or withdrawals, and no account fees. There are currently a small handful of products paying more than 3%.
Pros and cons of term deposits vs savings accounts
Term Deposits – Pros
|Certainty of a fixed rate of interest|
|Interest is paid on the entire balance|
|Savings locked away from spending temptation|
|Can be rolled over for another fixed term automatically|
|Can rollover the principal OR the principal and interest to take advantage of compounding|
|Even though the term is fixed you can generally access your funds in an emergency (note: a fee or penalty interest may apply)|
Term Deposits – Cons
|Penalty applies if emergency access to money is needed|
|Minimum deposit required|
Online Savings Accounts – Pros
|Can sometimes offer higher interest rates|
|Money available for use at any time|
|No minimum deposit amount required|
|Can make an extra deposit at any time|
Online Savings Accounts – Cons
|Interest rate can fluctuate|
|When rates go down, savings accounts are usually one of the first accounts to affected|
|Easy access can mean money is spent not saved|
|Interest rates can be tiered or there may be a minimum balance to obtain the headline rate|
Savings accounts interest rates: getting those savings to start with
Now that you’ve looked at the pros and cons of term deposits vs savings accounts, it’s helpful to take a step back and look at what you can do to increase your savings in the first place. CANSTAR has a range of budgeting tips and advice that can help you along the way. ANZ has also prepared a video on savings tips, to get you started.