Savings accounts or term deposits: where should you put your cash?
Whether you’re saving money for the short or the long term, choosing between a savings account or a term deposit should be a considered decision.
The key differences between the two need to be balanced against your financial goals to help you decide which way to go.
Access to your money –Term deposits lock your money away for a period of time starting at a minimum of one month and up to as long as several years. So make sure you won’t need to get your hands on your cash for a while.
Savings accounts give you more direct access to your money but generally offer a lower interest rate than their term deposit counterparts. They let you take your money out when you need or want it.
Interest rates –Savings accounts have variable interest rates, so they can change. Some rates are introductory so they’re only held for a certain amount of time, then they drop to a lower variable rate. Read the fine print to see if and when the rate changes, and to what amount. Some savings accounts give you bonus interest if you don’t make a withdrawal or you make a minimum monthly deposit. Be aware too that some accounts might reduce your interest if you withdraw too much or too often.
Term deposits offer fixed interest for the length of your term. So once you’ve opened a term deposit, if rates go down, your money isn’t affected because the rates are locked in. Usually the longer the term you choose, the higher the interest rate on offer (although it’s not always the case). It’s worth keeping an eye out for special interest rate offers, too.
Starting amounts –Term deposits generally have a minimum amount that you need to start with – often it’s at least $1,000. You can start a savings account from zero.
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Flexibility –Savings accounts let you add more money whenever you like. Term deposits generally don’t.
Which suits –You need to ask yourself what your savings objectives are. Accessible cash for immediate requirements through a savings account is attractive but for longer-term objectives such as that trip or new car you’ve been eyeing off, the term deposit attracting higher interest and forcing you to refrain from dipping into your account will have you winning in the long run.
If you open a term deposit, it’s good to maintain a savings account as well. That way you can keep adding to your savings and when you reach a certain amount, you’ve got the option of possibly starting another term deposit.
If you’ve got enough for a term deposit now, shop around for the best deal. There are savings account and term deposit comparison websites which can help make this easier, but it’s also worth checking out different banks and other providers too.