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Savings accounts vs term deposits

Piggy bank savings accounts vs term deposits

Have you got a lump of cash, but you’re not sure whether a savings account or a term deposit is what you need? It can be tough to tell, as both offer a place to keep your money and let it grow. 

The right kind of account depends on a number of factors such as your living and working situation, age, and more. However, you might not know much about the difference between term deposits and savings accounts.

Basically, we’ll compare the ways in which a term deposit and savings account differ in the way they function, which should help you to suss out the kind of account that works best for you.

Round 1: Interest Rates

With the Reserve Bank of Australia hiking the cash rate, numerous banks have responded in turn by hiking the interest rates on their home loans, but also thankfully raising savings and term deposits rates, too. 

Currently, a handful of savings account providers are offering accounts with interest rates at or over 5%. Meanwhile, term deposits only currently have one account on the Mozo database, Judo bank, offering a rate of 5% on a 5 year term.

Savings Account: Savings account interest rates are variable, which means that at any time the bank can announce an increase or decrease in the rate - typically following moves to the official cash rate. The advantage to this, however, is that savings accounts can move ahead of term deposits when it comes to the rates 

Some come with competitive ongoing bonus rates if you can meet the requirements, while other providers offer higher introductory interest rates for new customers which only last a few months. Search the Mozo database for high interest savings accounts.

Term Deposit: A term deposit always comes with a fixed interest rate which is guaranteed not to change during the term of your investment. The more money you’re going to invest the better the rate. For short-term deposits, interest is usually paid at the end of the term. When it comes to long-term deposits, interest is likely to be paid annually.

Round 2: Length of deposit

Another factor to consider is the length of the deposit. For some people, they won’t need to touch their cash for a while, so they can afford to take full length term deposits which can usually go for up to 5 years.

On the other hand, you might only be able to keep your deposit away for a short period of time. This is where a savings account or a shorter length term deposit may come in hand.   

Savings Accounts: You won’t have to worry about how long you keep your money in a savings account—the time is indefinite, so your hard-earned cash can grow there for as long as you want it to.

Term Deposit: When you set up a term deposit you will need to decide the length of time you wish to invest your funds. This can be anything from one month to five years. There are two main types of term deposits, short and long-term. A short term deposit is regarded as 12 months or less while a long-term deposit is anything longer than one year.

Round 3: Fees

Keep in mind the fees you might be paying when it comes to your savings as they can impede the amount of cash generated over the long term. 

Savings Accounts: A lot of savings accounts don’t have fees, especially the online accounts. However, some banks do charge setup fees or other ongoing costs. If you compare our database of hundreds of savings accounts you’re bound to find plenty of fee-free options.

Term Deposit: There are usually no fees attached to term deposits. However, if you withdraw your funds before the term has matured you will usually be penalised. It’s for this reason that you should consider carefully if you will need the cash in your term deposit before maturation.

Round 4: Withdrawals

Sometimes money is short, and withdrawals may be necessary if you find yourself in a precarious financial situation. However, if this happens and you need to take money out, just note that it can negatively impact your savings due to early withdrawal fees. 

Savings Account: With a savings account you generally have the option of withdrawing money at any time. However, with some accounts, you may need to deposit a certain amount at regular intervals or you may be restricted to a certain number of withdrawals. So keep in mind if you have a conditional interest rate as you might not receive the high bonus interest rate for that month.

Term Deposit: Your money is locked away in a term deposit, so you can’t touch the funds until the term has matured. If you do have to make a withdrawal before the set date penalties could apply.

Round 5: Minimum opening deposit

Savings accounts and term deposits will usually differ quite a bit when it comes to the minimum opening balance. 

Savings Account: You usually don’t need to make a minimum deposit to open a savings account – you can start from zero. However, you may need to deposit a minimum amount at regular intervals to get the maximum interest rate possible. 

Term Deposit: Banks like to work in round numbers, so to open a term deposit you'll often need to invest a minimum of $5,000 to $10,000 depending on the provider. The balance limits are detailed in our term deposits comparison table .

Round 6: Regular Payments & Deposits

Do you have a large sum of money that you want to have working for you immediately? Maybe you plan on depositing a certain percentage of your regular income into your money pile. Depending on the strategy you choose, you’ll find the kind of account you want to put your money into will differ.

Savings Account: You can keep on adding to your savings account indefinitely, but some providers will set a maximum limit for the amount you can earn the top interest rate on. In order to soak up the high interest rate, you're often required to deposit a certain amount every month. If you fail to make these payments the bank may lower your interest rate to the base level or pay no interest for that month.

Term Deposit: You cannot make additional payments to a term deposit. Remember though, that many term deposits allow monthly, yearly, and at-maturity interest payments so you can have your interest sit in the account and compound over time. Check out Mozo's guide to learn more about the types of term deposits you can choose from.

The pros and cons of savings accounts vs term deposits

We’ve compared the differences in features of savings accounts and term deposits, but you may still be a little unsure of the best place to store your money. So, it’s now time to break it down in a nutshell and look at the pros and cons of each to help you make an informed decision.

Savings Account Pros & Cons

Savings accounts are usually the go-to of your average saver, with banks often opening a savings account alongside a checking account. Banking apps have made savings accounts easy to manage and deposit into. 

The Pros

  • Online savings accounts offer high interest rates
  • You'll have access to your money whenever you like
  • You can make payments at any given time, building up the amount of interest you earn
  • There's generally no minimum amount required to open the account

The Cons

  • Interest rates can fall and a high introductory interest rate is only for a short term
  • With easy access to your money savings goals may not be met
    There’s no human contact with online savings accounts

Term Deposit Pros & Cons

Sometimes you just want to “set it and forget”. With term deposits, those who want to lock away a large sum of cash they’ve accumulated can do so. As a lot of term deposits will require minimum deposits of $5,000, and it’s cash that you can’t get access to, so it necessitates either a higher income or more savings on top of the deposit. This often means older people who have accumulated some money tend to favour term deposits. 

The Pros

  • A fixed term deposit gives you fixed interest so If the Reserve Bank drops interest rates there’s no impact on your term deposit
  • As tempting as it may be, you can’t access your savings until the term has matured
  • You can plan exactly how much you’ll earn over the term of the deposit

The Cons

  • You can’t access your money until the term has matured
  • You'll be unable to make additional payments – learn more about term deposit features
  • If interest rates rise, you might find that generous term deposit rate doesn't
  • look as impressive two years down the track
    Minimum deposit required starting from $5,000 or $10,000

The final decision…

If you’re still not sure what kind of account is right for you, there are a couple of questions you can ask yourself.

For one, have you got the minimum amount required to open up a term deposit? If you don’t have at least $5,000 saved up, then look for a high interest savings account.

Are you an impulse spender? Do you struggle to meet your savings goals? Then a term deposit may be your best fit as it's hands off those savings until the end of the term. If you are considering a term deposit, make sure that you have some money set aside for emergencies and unexpected bills.  At the end of the day whatever savings option you choose, make sure you take the time to compare the different savings accounts and term deposits to find the best deal to suit you and your savings goals.

Savings Account Comparison Table - last updated 3 December 2023

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Cameron Thomson
Cameron Thomson
Money writer

Coming from a background in creative writing and history, Cameron always seeks to write in a fun and engaging way. He’s usually thinking about long-term ways of saving and preserving financial wellbeing. He currently holds an RG 146 (tier 1).

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