In short:
Term deposits offer certainty by locking in an interest rate, while savings accounts give households greater flexibility and access to their money. The right option depends on when the money may be needed and how much certainty a saver wants.
Place Your Money Where It Best Suits
With household budgets under pressure and interest rates remaining elevated, Australians keeping money in the bank have an important choice: lock it away for a guaranteed return or keep it accessible in a savings account.
Term deposits and high-interest savings accounts are both considered relatively defensive places to hold money, but they suit different circumstances, financial goals and appetites for risk.
Certainty Comes With A Catch
A term deposit allows someone to lock away a lump sum for an agreed period, typically in exchange for a fixed interest rate.
That certainty can appeal to conservative savers who do not want exposure to fluctuations associated with investments such as shares. It can also suit money earmarked for a known future expense, particularly when the owner is confident they will not need it beforehand.
The downside is flexibility. Withdrawing a term deposit early can mean reduced interest or penalties, while some institutions may require up to 31 days’ notice.
Term deposits can also become less attractive if market interest rates rise after the money has been locked away.
Savings Keep Money Within Reach
High-interest savings accounts offer considerably more flexibility, making them potentially better suited to emergency funds or households whose expenses are less predictable.
They can also allow savers to benefit if deposit rates rise.
However, the advertised interest rate may come with conditions. Some accounts require regular deposits, minimum balances or other requirements to qualify for bonus interest, while rates can change over time.
Different Approach, Different Purpose
Neither option needs to be an all-or-nothing decision.
Someone with $20,000 in savings, for example, could keep part immediately accessible while placing money they are unlikely to need into a term deposit.
Both generally sit at the conservative end of the investment spectrum. Cash, including savings accounts and term deposits, is often used for short-term financial goals. The lower risk also generally comes with lower long-term return potential than growth investments.
For households, the decision ultimately comes down to what matters more for that particular pool of money: certainty or access.
