Savings accounts vs term deposits
Savings Account Comparison Table - last updated January 16, 2021
That leaves savings accounts and term deposits, which are both secure and safe places to store your money. However, there are a number of factors you need to consider to determine the best savings option for you.
So, we’re sizing up savings accounts and term deposits side-by-side so you can decide which path is for you.
The interest rate offered on a savings account is a standard variable rate, meaning it can change at any time.
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.
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.
The limit does not exist! The time you can keep your money in a savings account is indefinite, so your hard-earned cash can grow there for as long as you desire.
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.
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.
There are no fees attached with term deposits. However, if you withdrawal your funds before the term has matured you could be penalised. Check out our article to read more about term deposits features and fees.
With a savings account you generally have the option of withdrawing money at any time. However, with some accounts you may not receive the high bonus interest rate for that month if you make more withdrawals than the number allowed.
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.
Minimum opening deposit
You usually don’t need to make a minimum deposit to open a savings account – you can start from zero.
Banks like to work in round numbers, so to open a term deposit you'll often need to invest a minimum of $5,000 or $10,000. The balance limits are detailed at our term deposits comparison table .
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.
You cannot make additional payments to a term deposit. 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 you 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.
- 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
- A fixed term deposit gives you a guaranteed interest
- 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
- 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
- Some types of savings accounts require monthly deposits to be made
- 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 umming and ahhing about what to do, then ask yourself a couple of questions.
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 saving until the end of the term. If you are considering a term deposit make sure 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.
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