Savings Accounts vs Term Deposits: It pays to take interest

Welcome to week 2 of the ‘Mozo Answers Question of the Week’. Our Answers forum has been bombarded by questions about deposits this week, mainly centering on what the best rates are for both savings and term deposit accounts as well as the respective benefits of choosing a term deposit over a savings account and vice versa.

Lets start with savings accounts, where there are a couple of standouts well worth looking at. First off, BankWest’s “Regular Saver” has no monthly fee and a market leading rate of 7.0%. It’s an amazing rate, however you can’t make any withdrawals and you can only deposit up to $500 a month. If you can’t stick to those parameters, UBank’s USaver is a great option. It’s got a fantastic interest rate of 6.51% as long as you set up an automatic savings plan of at least $200 a month, 6.01% if you don’t. There’s no monthly fee, you can withdraw and deposit as much as you like and there are no balance conditions either.

Turning our focus towards term deposits, as a result of some pretty fierce competition there are a lot of attractive rates out there at the moment. To get the best out of a term deposit you’re better off giving it some time – for example, to get a rate of 6.0% or over you’ll have to invest your money for a minimum of 6 months. Take a look at the table below to see some of the best rates out there on various terms:

6 month 1 year 2 year 5 year
6.41% (UBank) 6.70% (Laiki Bank) 6.70% (ING Direct) 7.30% (Bank of Cyprus)
6.40% (RaboDirect) 6.60% (RaboDirect 6.55% (Bank of QLD) 7.00% (Westpac)
6.40% (Rural Bank) 6.60% (Bank of Cyprus) 6.50% (RaboDirect) 7.00% (NAB)
(Assumes deposit of $25,000. Data correct as at 23/02/11)

So a savings account or a term deposit? In the end, it all depends on what type of saver you are. A savings account lets you constantly add to and withdraw from your balance as necessary whereas a term deposit requires you to effectively ‘set and forget’ the lump of cash you’re depositing. Whilst savings accounts offer greater access and flexibility, term deposits offer greater interest, particularly if you’re willing to to opt for a long-term option. The other benefit is that for those compulsive spenders among us who are looking to save, unlike a savings account you can’t touch a term deposit until it matures (not without severe penalties anyway). So choose which matters more to you and go for it!

 
If you have a burning question and can’t seem to Google your way to enlightenment, or if you’re a budding personal finance expert ready to share your knowledge with the world, head to the Mozo Answers forum.
Savings Accounts vs Term Deposits: It pays to take interest was last modified: June 26, 2015 by Yash Murthy

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