Blossom’s Guide to Saving Accounts vs Term Deposits

Choosing where to store your cash is fundamentally a personal decision. We’ve put together this guide to help you consider the options and select the one you think will most suit your needs and

If you are looking for a low-risk option to stash your savings, you may be considering a high-interest savings account or a term deposit. But which option is best?

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There are many financial products out in the market that are targeted for different investors with different risk appetites. A commonly accepted position is that a savings account or term deposit is a dedicated account to offer higher interest rates to help you grow your savings. Depending on each financial product, this type of accounts tend to differ from your online banking everyday account, transaction account, or other day-to-day banking.

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Choosing where to store your cash is fundamentally a personal decision. We’ve put together this guide to help you consider the options and select the one you think will most suit your needs and circumstances.

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But before we start, please note that this guide contains general information only and does not take into account your personal circumstances, financial situation or needs. Before making a financial decision, you should read the read the relevant Product Disclosure Statement and Target Market Determination of the specific financial product and consider whether the product is right for you and whether you should obtain advice from a financial adviser.

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What’s the difference between a savings account and a term deposit?

Feature	Savings Account	Term Deposit
The return you receive on your money	Savings accounts generally offer a standard variable interest rate. The rate is not fixed and can move with the market or be subject to changes the banks make. Interest is usually higher than in a traditional transaction account, which helps you to build your savings faster. Some savings accounts pay a bonus rate above the standard variable rate, subject to certain conditions, such as regular deposits above a certain amount or nil withdrawals.	Generally, your interest rate is fixed. It is locked or set when you take out the term deposit for a term that typically ranges from one month to five years. So even if the market dips, your rate or return remains the same. The benefit of a fixed rate return is the certainty around how much you will receive at the maturity of your term deposit. Often the longer you fix your term deposit for, the higher the interest rate you may receive.
The fees you pay	Many savings accounts do not charge fees. It is important to do your research as some providers charge for set-up, monthly ongoing or annual fees.	There are generally no fees attached unless you withdraw any funds before the term has expired.
The access you have to your savings	A savings account is open and accessible to you at all times. You can often directly access your money or transfer them to the attached transaction account. This means you can withdraw your money if and when you need it. But remember, the interest you earn is calculated based on the amount in your account. Be aware of any penalties that may apply if you withdraw money from a bonus saver and savings account.	A term deposit is a fixed investment for a fixed time. You cannot access your money until the term is up. If you decide to break your term deposit early, you’ll incur penalties and break costs. Considering whether you need access to money during that term is important when choosing the term length for a term deposit.
The ability to make extra deposits	Savings accounts are flexible. You can control how much you save or withdraw at any time. Adding to your savings is easy. The more money in the account, the more interest you earn, so it’s beneficial to keep adding to it. Be aware that some accounts will require a certain amount to be deposited each month to qualify for a bonus interest rate.	When you set up a term deposit it’s for a fixed amount and fixed periods of time. You cannot make any additional deposits. The only way to add money is to wait for the term to mature and deposit your additional savings into a new term deposit.

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Factors you could take into consideration when putting your money in a term deposit

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Whether or not to put your money in a term deposit depends on your personal circumstances, financial situation or needs. But in general, there are a few factors you could consider. When considering between savings accounts and term deposits as an investment option for your savings, you may be tempted to make a decision to invest purely on the return on your money.

Whilst it’s tempting to go for the best rate on offer, the rate of return is often just one factor to consider. Whether a term deposit is the right solution for your savings will also depend on several factors, including;

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Your purpose for saving money, or your savings goal.
How long do you want to invest, or are comfortable locking away your money.
Whether you’ll need access to your money at some point in the future.
Whether you wish to make a single lump sum savings deposit or have the option to regularly save or micro-invest
What the account-keeping fees and charges are, and
Interest rate changes

Again, remember that there are many different types of financial products in the market that are suited for investors with different needs or risk appetites. Please do your own research and seek financial advice before making a financial decision.

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What are the advantages and disadvantages of term deposits over regular savings accounts?

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Investment Option	Pros	Cons
Savings account	You can access your savings when you need to, while still earning interest. You can add to your savings at any time. There is no set term, so you can keep your money in the account for as long as you want. There is usually no minimum amount or minimum deposit required. Most savings accounts have no fees.	Interest rates are variable, meaning they can change at any time. You have easy access to your money, so you may be more tempted to dip into your savings compared to a term deposit. For bonus accounts, if you don’t meet the bonus conditions, you are generally paid the standard variable rate only, which is generally on the lower end of the spectrum of financial products offering interests. When the bonus period ends interest reverts to the standard rate.
Term Deposit	Interest rates are fixed, providing certainty about how much interest you will receive. If interest rates drop in the market, your rate of return is protected. Most term deposits have no set-up or account fees. Your savings are locked away for the term, which can prevent you from dipping into them.	Accessing your money before the end of the term will incur penalty fees and charges. Once you’ve deposited money you generally cannot make additional deposits. Most term deposits require a minimum deposit between $1,000 and $5,000. If interest rates in the market increase, you won’t receive these increases.

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What did Canstar say about the “best high interest savings accounts” & “best term deposit interest rates” in Australia?

Much the same way that home buyers might use these comparison websites to compare home loans, home insurance and repayment calculator tools to understand that costs of home ownership. Savers can use these websites to compare the options and returns available between savings accounts and term deposits.

Many tools and resources help you compare term deposits vs. savings accounts. Comparison websites can help research options and compare account interest rates. Term Deposit Calculator and Savings Return Calculators are helpful to illustrate the fixed rate return achievable on various deposit amounts over a fixed period or different periods of time.

A quick look at a leading comparison site Canstar and we found the following information that compares savings accounts, and highest term deposits savings rates currently on offer (as at February 2023):

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Provider	Account	Interest Rate
ANZ	ANZ Savings ANZ Plus*	3.75%
Australian Unity	Freedom Saver	3.75%
Bankwest	Easy Saver	3.75%
Citi	Online Saver	3.35%
HSBC	Everyday Savings Promo rate 3 months	4.25%
Macquarie Bank	Savings Account	3.70%
Macquarie Bank	Bonus Savings Promo rate 4 months	4.75%
Rabobank Australia	High Interest Savings Account Promo rate 4 months	4.75%

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Source: Canstar 08/02/2023. Based on savings accounts on Canstar’s database, with rates based on a deposit of $10,000.
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https://www.canstar.com.au/savings-accounts/best-savings-account-interest-rates/

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Did you know that Blossom has a savings calculator?

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Provider	6 month rate	12 month rate
G&C Mutual Bank	4.00%	4.75%
Judo Bank	4.00%	4.40%
Community First CU	4.00%*	4.25%*
Firstmac	Online Saver	4.25%

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Disclaimer

The information in this article has been compiled from sources we believe are reliable. We make no warranty regarding the accuracy or completeness of the information given and provide the information on an ‘as is’ basis. Information can also become out of date quickly.

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Blossom’s Guide to Saving Accounts vs Term Deposits

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