Savings accounts vs term deposits
Where’s the best place to stash your cash and earn interest? In a piggy box hidden under your bed, in a savings account or a term deposit? There’s no right or wrong but if you’re looking to make money on your savings then we suggest getting rid of the piggy bank regardless of how sentimental it may be!
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 and features that need to be considered to determine the best savings option for you. So we’re putting savings accounts and term deposits head to head and we’ll let you decide which one will have your money piling up higher and higher.
The interest rate offered on a savings account is a standard variable rate, meaning it can change at any time. Online savings accounts come with high competitive interest rates while a lot of banks 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, it’s locked in and guaranteed not to change during the term of your investment. The interest rate offered on a 12 month term deposit is generally higher than a short term deposit of three or six months. Also, 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 time you can keep your money in a savings account is indefinite. Have your hard earned savings sitting in the account 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. The idea is to save not to dish out your money to pay fees! However some banks do charge setup, ongoing and/or annual fees. If you compare our database of hundreds of savings accounts you’re bound to find plenty that are fee free.
There are no fees attached with term deposits. However if you withdrawal your funds before the term has matured you will be penalised. Check out our article to read more about term deposits features and fees.
With a savings account you have the option of withdrawing money at any time. However 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, you can’t touch the funds until the term has matured. If you did have to make a withdrawal before the set date penalties will apply.
Minimum opening deposit
You 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 need to invest a minimum of $1000. The balance limits are detailed at our term deposits comparison table .
You can keep on adding to your savings account, after all the more money sitting in there the more interest you’ll earn. Often though, in order to soak up the high interest rate on offer you are required to deposit a certain amount every month. If you fail to make these payments the bank will lower your interest rate 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.
Weighing up the pros and cons of savings 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 about where to store your savings.
- Online savings accounts offer high interest rates
- Access to your money whenever you like
- Can make payments at any given time, building up the amount of interest you earn
- 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
- Savings goals are achievable as you can plan exactly how much you’ll earn over the term of the deposit
- Interest rates can fall and the introductory high 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
- 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 around $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 $1,000 saved up then look for a high interest savings account. Are you an impulse spender and have little control when it comes to shopping? Do you struggle to meet your savings goals? Yes and yes! 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 on offer from various banks and financial institutions in order to find the best deal to suit you and your savings goals.