Savings accounts vs term deposits
With interest rates in flux, where you park your cash matters more than ever. Should you embrace the flexibility and changing returns of a savings account, or lock in a fixed interest rate with a term deposit?
This guide walks you through the key differences, advantages and drawbacks of each option, while highlighting what to consider before deciding where your money is best placed.
Good to know: Eligible deposits held with an APRA‑regulated bank, credit union or building society — whether in a savings account or a term deposit — remain protected under the Australian Government’s Financial Claims Scheme (FCS) up to $250,000 per customer, per institution.
Quick comparison: savings account vs term deposit
| Feature | High interest savings account | Term deposit |
|---|---|---|
| Liquidity/access | Funds are available ‘at call’ but there may be restrictive conditions (e.g. no withdrawals) to earn the highest rate | Funds are locked for the entirety of the fixed term |
| Interest rate | Variable, often conditional or bonus-based in order to attain the highest rate available | Fixed for the term's duration |
| Is it affected by the RBA cash rate? | Yes, often directly. Rates typically change based on the RBA's decisions. | Not during the fixed term |
| May be suited for... | Regular savings, emergency funds, short-term goals, ongoing contributions | Savings goals (e.g. new car) |
Variable vs fixed savings options
High-interest savings accounts:
Most savings rates advertised are made up of two parts – a base rate and a conditional (bonus) rate. To earn the full rate, you’ll usually need to:
- Deposit a set amount each month (for example, $200).
- Make no withdrawals during the month.
However, terms may differ between providers and accounts. If you don’t regularly meet the conditions relevant to your account, you may only earn the lower base rate for that period.
There's also accounts that offer an introductory rate – often for the first four months or so from activation – before reverting to a lower standard rate after the promotional period has ended.
Term deposits:
A term deposit locks in your rate for the entire term. It doesn't matter whether that’s 1 month, 6 months, 12 months or longer. Your return is guaranteed, regardless of Reserve Bank of Australia (RBA) rate changes. This certainty can appeal to savers who prefer stability over flexibility.
Accessibility and early withdrawal penalties
Savings account flexibility:
You can access your money whenever you need it, although you might forfeit your bonus interest for that month.
Term deposit restrictions:
Funds are locked in until the end of the term. If you need to withdraw early, you’ll generally have to give at least 31 days’ notice, and your bank may reduce your interest rate for the full period. You may also be charged an early withdrawal fee. See our term deposit early termination guide.
Choosing the right option for your savings goals
You can use these scenarios to help decide which option aligns with your financial plan.
You might choose a high-interest savings account if:
- You need an accessible emergency fund.
- You’re saving small, regular amounts.
- You think the RBA may lift rates, and want your return to move in step.
You might choose a term deposit if:
- You have a lump sum you won’t need for a set period.
- You value certainty and want to lock in your rate.
- You expect the RBA may cut rates and want to secure a higher return now.
